Investigating COVID-19 Influence on the VIX Index through ARIMA Model Predictions.

Abstract

The COVID-19 pandemic has impacted the global economy and stock markets, raising concerns and pessimistic emotions in the public. These public emotions would respond to the pandemic in the stock market, whereas the VIX index is a reflection of these emotions. This study utilizes ARIMA models to forecast the VIX index after the outbreak of COVID-19 based on the data before the pandemic and compares the predicted and actual values. The result shows a remarkable gap between the trained prediction and the actual VIX index after COVID-19, which indicates that any large-scale pandemic would incur an increased pessimistic expectation on the stock market in a short period. It would be wise for individual investors to change their portfolio into a conservative setup at the onset of any global crisis and consider investing in the VIX index. It would be reasonable for an enterprise to prepare some precautions like building up a business related to the crisis. For the government, it would be essential to predict the onset of any crisis and be prepared for the potential dramatic decreases in stock markets and the general economy.