Analysis of the US stock market during the COVID-19 pandemic

• Název práce v češtině: Analýza akciových trhů v USA během pandemie COVID-19
• Název v anglickém jazyce: Analysis of the US stock market during the COVID-19 pandemic
• Klíčová slova: akciový trh, GARCH, objem obchodů, pandemie, volatilita
• Klíčová slova anglicky: GARCH, pandemic, stock market, trading volume, volatility
• Akademický rok vypsání: 2019/2020
• Typ práce: bakalářská práce
• Jazyk práce: angličtina
• Ústav: Institut ekonomických studií (23-IES)
• Vedoucí / školitel: prof. PhDr. Ladislav Krištoufek, Ph.D.
• Řešitel: skrytý - zadáno vedoucím/školitelem
• Datum přihlášení: 04.05.2020
• Datum zadání: 04.05.2020
• Datum a čas obhajoby: 08.06.2021 09:00
• Místo konání obhajoby: Opletalova - Opletalova 26
• Datum odevzdání elektronické podoby: 03.05.2021
• Datum proběhlé obhajoby: 08.06.2021
• Oponenti: Mgr. Nicolas Fanta

Seznam odborné literatury

Bhownik, R., Wang, S. 2020. Stock Market Volatility and Return Analysis: A Systematic Literature Review. International Journal of Economics and Management Systems, 5: 217-232
Cross, F. 1973. The Behaviour of Stock Prices on Fridays and Mondays. Financial Analysts Journal, 29: 67-69
Draper, P., Paudyal, K. 2002. Explaining Monday Returns. Journal of Financial Research, 25 (4): 507-520
French, K. R. 1980. Stock returns and the weekend effect. Journal of Financial Economics, 8 (1): 55-69
Schwert, G. W. 2011. Stock Volatility During the Recent Financial Crisis. European Financial Management, 17: 789-805
Tsay, R. S. 2010. Analysis of Financial Time Series. 3rd ed. Hoboken, New Jersey: John Wiley & Sons

Předběžná náplň práce

Research question and motivation
The main research question I intend to study is the effect the COVID-19 pandemic has had on the US stock market.

I would like to find out whether there are some new patterns that can be observed on the stock market during a pandemic period, which are otherwise not present.

One of the possible patterns could be the well-known day-of-the-week effect that had been analysed many times before, in fact the first analysis was done in a journal article in 1970s when it was shown that there is a tendency for the market to rise on Fridays and decline on Mondays (Cross, 1973). Over the years, many other analyses researching this phenomenon have been done, but I am especially interested in the possible patterns that may have arisen during the panic that was caused on the stock market due to the COVID-19 pandemic. I am keen to explore this, as my hypothesis is that the Monday effect was very strong in the first stages of the pandemic as more and more bad news were being published, however in my opinion this effect was rather short-lived as the initial panic on the market did not last very long.

During the last financial crisis in 2008 the stock market was hit especially hard in the financial sector with very high volatility (Schwert, 2011). However, that was largely due to the fact that the crisis started with the collapse of the housing markets, which was closely tied to the financial market, however the COVID-19 crisis is very different. I am interested to test, whether there are some strong similarities that can be seen in the behaviour of the stock market with what was researched for the Great Recession, or the market was hit much stronger in other fields. We can already see that companies in the technological sector are performing very well and I would like to explore the effects on various sectors and compare the results. I hypothesize that the market volatility was very high across all sectors in the early stages of the pandemic, and then slowly forming some patterns. With the technological sector receiving a lot of attention during the crisis, I would assume higher volatility for this sector than usual.

My thesis will cover both the possible patterns in form of day-of-the-week effect as well as the patterns of volatility or trading volume across multiple sectors traded on the US stock market.

Contribution
The topic of COVID-19 pandemic and its effects on all types of markets is very fresh with still very little literature covering it. Which gives a great opportunity for this thesis to provide some interesting data, that have not yet been covered.

The main contribution this thesis will provide is the behaviour of the investors on the stock market during a crisis like this one. It will be very interesting to provide solid data on the different sectors of economy and the impact the crisis has had on them.

Methodology
I will use publicly available sources (e.g. dukascopy.com, finance.yahoo.com etc.) where I can gather data points for the whole US stock market using the Standard & Poor’s index of 500 largest companies traded on the US stock market, as well as multiple other stocks representing the different fields that are being traded on the stock exchange (technology, financial sector, pharmaceuticals, energy…).

After gathering the data, I will analyze the the day-of-the-week effect, the volume being traded and the volatility during the given period. Then I will match the results from the COVID-19 period with results for past years and compare them with previous researches done and evaluate on my hypotheses.

I would like to use statistical tests to measure the day-of-the-week effect as well as some more advanced econometric models like the GARCH model for estimating the market volatility.

Outline
Abstract
Introduction
a) Motivation behind the topic
b) Overview of existing knowledge
c) Contribution
d) Organization of the thesis
Literature review and hypotheses
a) Literature on stock markets analysis
b) Evidence of existing patterns on the stock market
c) Hypotheses
d) Motivation and reasonability of the hypotheses
Methodology
a) Description of the data
b) Description of the methods used to get the results
c) How I perform the analysis
Results
a) Interpreting the results
b) Evaluating of the hypotheses
Conclusion
a) Broader interpretation and commenting on the results
b) Implications for practice
c) Topics for further research