Preventing crash in stock market: The role of economic policy uncertainty during COVID-19.

Dai, Peng-Fei; Xiong, Xiong; Liu, Zhifeng; Huynh, Toan Luu Duc; Sun, Jianjun

Dai, Peng-Fei; Xiong, Xiong; Liu, Zhifeng; Huynh, Toan Luu Duc; Sun, Jianjun.

Dai PF; College of Management and Economics, Tianjin University, Tianjin, China.
Xiong X; School of Business, East China University of Science and Technology, Shanghai, China.
Liu Z; College of Management and Economics, Tianjin University, Tianjin, China.
Huynh TLD; Management School, Hainan University, Haikou, China.
Sun J; Chair of Behavioral Finance, WHU-Otto Beisheim School of Management, Vallendar, Germany.

Financ Innov ; 7(1): 31, 2021.

Article in English | MEDLINE | ID: covidwho-1206161

ABSTRACT

ABSTRACT

This paper investigates the impact of economic policy uncertainty (EPU) on the crash risk of US stock market during the COVID-19 pandemic. To this end, we use the GARCH-S (GARCH with skewness) model to estimate daily skewness as a proxy for the stock market crash risk. The empirical results show the significantly negative correlation between EPU and stock market crash risk, indicating the aggravation of EPU increase the crash risk. Moreover, the negative correlation gets stronger after the global COVID-19 outbreak, which shows the crash risk of the US stock market will be more affected by EPU during the epidemic.

Keywords

COVID-19; Crash risk; Economic policy uncertainty; Skewness

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Full text: Available Collection: International databases Database: MEDLINE Type of study: Prognostic study Language: English Journal: Financ Innov Year: 2021 Document Type: Article Affiliation country: S40854-021-00248-y

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