COVID-19 and Stock Market Behavior

This study investigates the volatility behavior of stock returns in the Korean and U.S. stock markets before and after the COVID-19 outbreak in early 2020. According to the results of the analysis covering the entire period from January 2015 to December 2022, all three stock index returns, the KOSPI and KOSDAQ indices in Korea and the S&P 500 in the U.S., show asymmetry in stock return volatility. The empirical results before and after COVID-19 show that the degree of asymmetry was the lowest in the KOSPI index for the period before COVID-19, while those of the KOSDAQ index and S&P500 index were similar. Interestingly, after COVID-19, the degrees of asymmetry in the KOSPI and KOSDAQ index markets were much greater than before COVID-19, while the degree of asymmetry in the S&P500 index was reduced compared to before COVID-19. The asymmetric behavior of stock return volatility depending on whether the information in the stock market is good or bad can provide many implications to stock market participants, related policy makers, and derivatives market participants.