The Long-term Impact of Covid-19 on US Stock Market: Evidence from Time Series Model

Abstract

The COVID-19 had a obvious impact on the world economy. Both the real economy and the financial markets suffered a huge negative impact in the short term. Considerable studies have pointed out that stock markets suffered a considerable negative impact on yields and volatility in the short-term following the outbreak, but few studies have explored the long-term impact of COVID-19 on stock markets. This research hopes to complement this part of the study. This study investigates the impact of the number of daily new cases on the three major U.S. stock indices, i.e., NASDAQ, S&P 500, and DJI yields and volatility, by developing a VAR model and an ARMA-GARCHX model. The results of this study show that the number of COVID-19 new cases will only have a negative impact on stock yields on that day and will not have a long-term impact. And the number of new cases is negatively related to stock volatility. This study shows that after nearly three years of COVID-19 persistence, it no longer causes widespread panic and irrational behavior, and stock volatility has started to fall back. This result helps to build confidence that people will return to the stock market.