Perceiving Uncertainty on Financial Markets During the Covid-19 Pandemic
|Author:||Bc. Matej Balažovič|
|Year:||2022 - summer|
|Leaders:|| PhDr. František Čech Ph.D.
|Work type:|| Bachelors
|Awards and prizes:|
|Abstract:||This thesis examines the effects of the COVID-19 pandemic on forward rate agreements (FRA)
spreads in the Czech Republic. Since FRA serves as a useful instrument to hedge against possible risk
associated with interest rate movements, it is a relevant indicator of a consensus view and perceived
uncertainty about the future financial situation. We measure the effects by employing ARMA-GJRGARCH modeling. Several COVID-19 indices, representing the government response to the
pandemic, are included as explanatory variables. The results show a significant drop in FRA spreads
as the pandemic began, as well as a strong increase in the FRA spreads volatility, which doubled
during that period. Our main findings suggest that the COVID-19 affected the decrease of FRA
spreads. However, we were not able to explain the volatility increase by the COVID-19 data.