This chapter examines the effect of surprises from financial markets announcements relating to new, confirmed, and death cases of COVID-19 in USA on the volatility of financial markets in Tunisia. The authors use GARCH(1.1) specification by incorporation the surprise component in the estimated model during the period from January 1, 2019 until December 31, 2020. The empirical findings show that the evolution of the daily returns and volatilities of the stock market index in Tunisia show very significant peaks in their evolutions in particular during the first three months of 2020 during the most significant spread of the COVID-19 pandemic. The authors show that the announcements of the new cases of COVID-19 in the United States have a significant impact on the volatility of financial markets in Tunisia. This chapter is the first paper that examines the effect of surprises from financial markets announcements relating to new, confirmed, and death cases of COVID-19 on the volatility of financial markets in Tunisia.
Top1. Introduction
In a span of less than half a year, the novel coronavirus (Covid-19) has undergone a remarkable transformation from a mere viral epidemic to a global pandemic, with profound implications that have the potential to reshape the world as we know it, in a positive manner.
This latest pandemic has been likened to a “third world war” by many, however, specific measures have been implemented to mitigate its impact. The objective of these measures is to curtail the deterioration of the situation and prevent a complete cessation of activities across various sectors worldwide.
Industries such as education, tourism, transportation, public services, sports, and electoral events have all been either postponed or suspended, thereby inevitably impacting the social and economic lives of individuals. A substantial number of contagion cases and fatalities have already been reported globally. The prospect of this pandemic persisting for an extended period, coupled with the significant declines in stock markets, which have reached historic lows not witnessed in years, is indeed disconcerting.
The S&P 500 Index recently attained its lowest level since the onset of the global financial and economic crisis in 2008. Moreover, the cryptocurrency market has demonstrated even greater volatility, experiencing an unprecedented and severe downturn. In late March 2020 alone, prices plummeted by 6% within a 24-hour period. Consequently, investors and traders have been compelled to shift their focus from “risky” assets to more stable alternatives like gold and oil, which have exhibited resilience throughout the COVID-19 pandemic.
Considering that China and South Korea account for approximately 70% of bitcoin's mining capacity (the largest cryptocurrency), it is evident that the profound impact of the virus was anticipated, particularly in Asian nations. In recent years, there has been a significant influx of cryptocurrency mining equipment, however, the current decline in prices is adversely affecting the performance of these mining machines. The present reliance on this equipment has become inefficient due to the need to recalibrate to new algorithms. Furthermore, the diminished movement to mining farms resulting from isolation and quarantine measures has exacerbated this issue. Despite prevailing projections, prices continue to plummet, culminating in an overall decrease of 15% by the end of March.
The magnitude of the impact of this health crisis has compelled the academic community to conduct research on its underlying causes and its effects on both the microeconomic and macroeconomic levels. As a result, various models have been developed, with a focus on examining the effects of this crisis. Macro-financial models have been expanded to analyze the influence of epidemics and the importance of public interventions. Recent studies have assessed the current financial vulnerability and its relationship to the series of events of the COVID crisis and regulations since 2019 (Zaremba et al., 2020; Ozili and Arun, 2020; Albulescu, 2020; Goodell, 2020; Zhang et al., 2020; Costola et al., 2020; Ahundjanov et al., 2020; Engelhardt et al., 2020; Derbali et al., 2021a; Derbali et al., 2021b; Derbali et al., 2022a; Derbali et al., 2022b; Ghorbali et al., 2022a; Ghorbali et al., 2022b; Derbali, 2022; Ben Ltaifa and Derbali, 2021).