From lab to market: the vaccine effect on stock volatility throughout the pandemic

We investigate the impact of vaccine announcements and expectations on eight stock markets throughout the COVID-19 pandemic. Using a nonlinear model, we find that vaccine developments significantly reduce volatility, thereby mitigating financial system risks compared to the pandemic’s early stage. However, multi-period volatility forecasts indicate ongoing uncertainty due to rising infection rates following the initial vaccine announcements. Furthermore, our analysis reveals that the pandemic generated additional cross-market linkages, with the nature of these linkages evolving over time.