Simulation of Impact of COVID-19 Pandemic on Dow Jones Index Using Random Walk

ABSTRACT

The outbreak of pandemic of COVID-19 is a totally unexpected event, which impacts heavily on the world stock market, especially the US stock market. So far, mathematical, statistical and probabilistic models have been used in the simulation of stock markets, whereas the probabilistic models appear to be more suitable for current situation because of the unexpectedness of COVID-19 pandemic. In this study, the random walk model, which is based on random walk hypothesis of stock markets, was used to simulate the opens of Dow Jones Industrial Average Index for 7 months, 2 years and 7 months, 5 years and 7 months, 10 years and 7 months, and 20 years and 7 months, respectively. The unexpected events not only include the current COVID-19 pandemic but also the 9/11 terrorism attack on the World Trade Center. The simulations demonstrate that the random walk is still difficult to precisely describe the impact of COVID-19 pandemic on the Dow Jones Industrial Average Index although the general trends look similar. © 2021 ACM.