Infectious Disease and Asymmetric Industrial Volatility

Abstract

We examine the time-varying effect of stock market volatility due to infectious diseases on industrial sectorsin the US from 2012 to 2021. We extend the current literature by exploring the diverse impact of infectiousdiseases on various industrial sectors and decomposing industrial volatility into good and bad volatility toquantify how good and bad components vary in response to the transmission of shocks due to infectiousdiseases. The results show that the transmission of volatile shocks from the stock market more stronglyenhances the good component of industrial volatility as compared with bad volatility during COVID-19. Weconclude that the relationship between infectious disease equity market volatility and industrial volatilitydepends on the good and bad volatile components and their respective conditions at different quantiles.