What causes US equity market sector volatilities during the coronavirus pandemic?

Abstract

This paper seeks to identify key variables contributing to sectoral stock market volatilities in the US under the enduring pressure of the COVID-19 pandemic, using a broad array of candidate factors. We adopt a Beta-Skew-t-EGARCH model to capture the time-varying dynamics of the individual sectoral return volatilities. The empirical analysis is performed via an elastic-net regularized regression model. We find that trading volume, volatility of broad US dollar exchange rates, coronavirus infection rates, VIX, Google search trends, US economic policy uncertainty, and the initiation of vaccination programmes are the most common determinants of sectoral volatility.