COVID-19 and causality in volatility in the Chilean stock market

In this research, the unidirectional Granger causality is studied from the Infectious Disease Equity Market Volatility Tracker index towards the volatility of the Chilean stock market, which is modeled through a conditional autoregressive procedure. Three causality tests are applied and, in a complementary way, the cross-bicorrelation test. The results indicate that this index causes market volatility with most of the tests applied. This indicates the potential relevance of having this new indicator for agents that participate in financial markets, including regulators, companies, and brokers. Additionally, the results are consistent with the evidence on the predictive capacity of this index on oil price volatility and other indices.

Automated summary

The research explores how the Infectious Disease Equity Market Volatility Tracker index influences the volatility of the Chilean stock market, indicating its potential relevance for financial market participants such as regulators, companies, and brokers. The results align with evidence on the index's predictive capacity regarding oil price volatility and other indices.