Correlation between volatility and stock market indices performance
Kallio, Akseli (2021)
Lataukset:
2021
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Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:amk-2021052511203
https://urn.fi/URN:NBN:fi:amk-2021052511203
Tiivistelmä
In 2019 coronavirus, which was later stated as a global pandemic started to spread out from China. This caused countries to set up restrictions. These restrictions decreased travelling and global trade which caused panic to the stock market. It caused global stock market indices to plunge more than 30% in a record time. However, they also recovered in a record time. This stock market crash is rare because it was caused by a virus when usually, the fall is caused by the current economy. This thesis researches the performance of S&P 500, Nasdaq 100, Dow Jones Industrial Average and Russell 2000 during different times of volatility. Focus is on 2020 but data has also been gathered from 2007 so that previous years can be compared to 2020. In addition, reasons for quickest fall and recovery in the history of stock market crashes is researched.
This is a research type thesis which uses quantitative analysis. Indices are researched between 2007 and 2020. Main idea was to research performance and volatility of the indices using GARCH and ARCH models. In addition, explain how in 2020 coronavirus, stimulus checks and vaccine affect the behaviour indices. Research is based on four investigative questions which together answer to research questions which is: How does stock market indices perform during different types of volatility?
The scope of this thesis is to research performance of indices during 2020 and compare it to previous years. The researched indices are investigated through their performance, content and size. In addition, indices performance is researched during different types of volatility.
This thesis also briefly covers how robots affect stock market indices. Technology enables machines to trade faster than humans. This can cause large moves for indices without an actual reason from an economy. In addition to this it allows some traders to make money by taking very little risk.
The main reasons for indices to recover quickly can be explained by the U.S. government stimulus checks, earnings reports that beat estimates and vaccine. Overall companies quickly adapted to this situation by doing harsh decisions such as major layoffs.
Throughout the year the stock market indices rose quickly reaching their prior highs in June even though the U:S. economy was still under a lot of pressure caused by the coronavirus. Money market behaved on its own way when compared to economy where unemployment rose quickly in the U.S. However, this was only temporary, and the employment quickly headed back to normal.
Overall, during volatile periods in stock market great daily movements can be seen. High volatility does not mean that indices would only move to one direction. This is proven by using GARCH model to calculate volatility and correlating it to index performance.
This is a research type thesis which uses quantitative analysis. Indices are researched between 2007 and 2020. Main idea was to research performance and volatility of the indices using GARCH and ARCH models. In addition, explain how in 2020 coronavirus, stimulus checks and vaccine affect the behaviour indices. Research is based on four investigative questions which together answer to research questions which is: How does stock market indices perform during different types of volatility?
The scope of this thesis is to research performance of indices during 2020 and compare it to previous years. The researched indices are investigated through their performance, content and size. In addition, indices performance is researched during different types of volatility.
This thesis also briefly covers how robots affect stock market indices. Technology enables machines to trade faster than humans. This can cause large moves for indices without an actual reason from an economy. In addition to this it allows some traders to make money by taking very little risk.
The main reasons for indices to recover quickly can be explained by the U.S. government stimulus checks, earnings reports that beat estimates and vaccine. Overall companies quickly adapted to this situation by doing harsh decisions such as major layoffs.
Throughout the year the stock market indices rose quickly reaching their prior highs in June even though the U:S. economy was still under a lot of pressure caused by the coronavirus. Money market behaved on its own way when compared to economy where unemployment rose quickly in the U.S. However, this was only temporary, and the employment quickly headed back to normal.
Overall, during volatile periods in stock market great daily movements can be seen. High volatility does not mean that indices would only move to one direction. This is proven by using GARCH model to calculate volatility and correlating it to index performance.