The drastic price fluctuations in the U.S. securities market during the great recession vis-à-vis the coronavirus pandemic

Abstract

This dissertation studies the volatility within the United States securities market during the Great Recession vis-à-vis the Coronavirus pandemic. Volatility is a closely followed benchmark of financial markets which acts as a barometer of investor ambiguity and concern encircling investments. Volatility is therefore, an extremely essential yardstick to fund managers, retail investors, regulators, and legislators. In this dissertation, five sectors - Banks, Commodities, Tourism and Leisure, Technology and Pharmaceutics – and seven indices – CBOE Volatility Index, S&P 500 Index, KBW Bank Index, Bloomberg Commodity Index, Nasdaq U.S. Benchmark Travel and Leisure Index, Nasdaq-100 Technology Sector Index and NYSE Arca Pharmaceutics Index – are studied. The dataset for the Great Recession comprises 1128 observations whilst that for the Coronavirus pandemic comprises 672 observations. Each crisis is categorised into sub-periods, and for fair comparative reasons, each sub-period within the same crisis consists of the same number of observations. The analysis of this study takes the form of descriptive and inferential statistics. Using the former, the Author concludes that the best performer during the Great Recession was the technology sector, whilst the worst performer was the commodities sector. On the other hand, during the Coronavirus pandemic, the best performer was the pharmaceutics sector, whilst the worst performer was again the commodities sector. The Author also concludes that during both crises the bank sector witnessed the highest volatility whilst the pharmaceutics sector witnessed the lowest volatility. This study also establishes that the outbreak of both crises led to a significant increase in the correlations between the sectors, whilst VIX witnessed a high, or sometimes moderate, negative correlation with the sectors. Moreover, through regression analysis, the Author determines that as markets go through adverse periods and index values drop, participants become more nervous which results in an increase in VIX. Lastly, the selected indices imply that in comparison to the Coronavirus pandemic, the Great Recession triggered higher volatility in the United States securities market.