COVID-19, Lockdowns and Implied Market Volatility: Evidence from Coronavirus Vaccine Stocks

This paper investigates the bilateral relationship (i.e., correlated and causal) between market returns of five coronavirus vaccine stocks, covering BioNTech, Pfizer, Moderna, Johnson&Johnson, and AstraZeneca, and the implied volatility index (IV), using weekly time series data from 3 May 2020 to 15 October 2023. In addition, the unique nature of this study is based on the empirical assessment of differential patterns, if any, across the selected vaccine stocks and bull and bear market cycles in each of these vaccine stocks by employing regression and causality models. The results indicate that market return and implied volatility movements are positively correlated, and the statistical association is asymmetric and non-linear in nature, based on correlation coefficients and pooled regression models, even after sorting out extreme outliers. The empirical findings also statistically validate strong evidence of unidirectional causal flow from market movements to IV, which supports the leverage effect holding for each market period (irrespective of bull and bear swings) and all selected vaccine stocks. In that vein, these outcomes support the idea that both effects (i.e., volatility feedback and leverage) are significant in different models. Thus, such an association challenges the premise that it holds in general equilibrium settings under restrictive assumptions. JEL Classifications: C12, C21, G23