Political Uncertainty, COVID-19 pandemic and Stock Market Volatility Transmission

Apostolakis, George N.; Floros, Christos Gkillas Konstantinos Wohar Mark

News about referendums and the ongoing evolution of a global contagious increase uncertainty about the development of economic fundamentals reflected by increased volatility in the financial markets. In this paper, employing volatility impulse response functions and assessing the volatility spillovers we examine intra-market volatility transmission in the Athens stock market. We employ a large sample period of daily data that spans from December 1999 to December 2020 and captures major events of the last 20 years especially related to the announcement of the two referendums during the Greek government-debt crisis in 2010 and the economic and political turmoil that increased country instability, the following years, the BREXIT referendum and the COVID-19 pandemic of 2020. Our results demonstrate that negative shocks during the announcement of the referendum produce larger impulse responses than during the announcement of the country lockdowns. Furthermore, we shed light on the existence of the dynamic relationship of volatility spillovers. Volatility spillovers peaked during the COVID-19 pandemic. Dynamic spillover plots demonstrate that during the COVID-19 pandemic, more volatility is transmitted by mid cap firms to large cap firms. Our findings have implications to market participants, policy makers and market regulators.