AN EXPLANATION OF FUTURES MARKET VOLATILITY DURING THE COVID-19 CRISIS

Megan Y. Sun, School of Business and Economics, University of Wisconsin – River Falls, River Falls, WI, U.S.A.
Meiying Hua, School of Business and Economics, University of Wisconsin – River Falls, River Falls, WI, U.S.A.
Dawn Hukai, School of Business and Economics, University of Wisconsin – River Falls, River Falls, WI, U.S.A.
Published in

 JOURNAL OF ACADEMY OF BUSINESS AND ECONOMICS
Volume 24, Issue 1, p64-78, March 2024

ABSTRACT

Using a trivariate structural vector autoregressive (SVAR) model on S&P 500 index futures and NASDAQ 100 index futures contracts, this paper examines the effects of fundamental shocks and noise trading shocks on returns, volatility, and volume during the COVID-19 crisis in 2020. We find the increased pandemic volatility is primarily due to fundamental transitory shocks, with significant and long-lasting impacts on volatility following the market crash. Noise trading is a secondary factor in creating the increased volatility.

Keywords

noise trading, fundamental shocks, SVAR model, volatility


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