Table 3.
Robustness Checks
The table reports the results of the regression specifications (5) and (8) in Table 3 with additional modifications to the baseline methodology. By default in the standard approach, the independent variable is the absolute daily residual from the seven-factor model (|RR7|), the independent variables are the Government Response Index (GVT), Economic Support Index (ECO), Containment and Health Index (CTNT), change in the number of COVID-19 infections (ΔINF), change in the number of COVID-19 deaths (ΔDTH), bond duration (DUR), sovereign rating (CRED), convexity (CX), the market value of a bond index portfolio (MV) in U.S. dollars, VIX volatility index (VIX), and weekday dummy variables, and the regressions are run using random-effects models. The reported values are coefficients on GVT and ECO multiplied by 100. The modifications to the baseline methodology reported here include: using pooled (1) and fixed-effects (2) regression models instead of the random-effects model; replacing the dependent variable |RR7| with alternative volatility measures: absolute residual from the one-factor model (|RR1|), absolute residual from the three-factor model (|RR3|), absolute daily returns in U.S. dollars (|RUSD|) and local currencies (|RLOC|) ((3)-(6)); replacing contemporaneous policy variables with one-day lagged policy variables (7), replacing changes in infection numbers with changes in the death count (8), including infections and deaths numbers ((9), (10)); excluding changes in infection and death counts from the model (11); excluding weekday dummy variables (12), and replacing the CTNT with the Stringency Index (STG) (13). Coefficient standard errors (in parentheses) are robust to autocorrelation and heteroscedasticity. The asterisks *, **, and *** indicate statistical significance at the 10%, 5%, and 1% levels, respectively. The study period runs from January 1, 2020 to September 12, 2020.
| No. | Robustness check | GVT | ECO |
| (1) | Pooled regression model | -0.215*** | -0.206*** |
| (0.027) | (0.033) | ||
| (2) | Fixed-effects regression model | -0.156*** | -0.080** |
| (0.038) | (0.038) | ||
| (3) | Volatility based on residuals from the one-factor model | -0.197*** | -0.170** |
| (0.044) | (0.068) | ||
| (4) | Volatility based on residuals from the three-factor model | -0.162*** | -0.091** |
| (0.048) | (0.040) | ||
| (5) | Volatility based on raw USD returns | -0.368*** | -0.187*** |
| (0.044) | (0.063) | ||
| (6) | Volatility based on raw local returns | -0.312*** | -0.155*** |
| (0.042) | (0.052) | ||
| (7) | Lagged policy variables | -0.177*** | -0.090* |
| (0.041) | (0.046) | ||
| (8) | Change in death count only included | -0.184*** | -0.104** |
| (0.038) | (0.043) | ||
| (9) | Infections levels included | -0.169*** | -0.070* |
| (0.038) | (0.037) | ||
| (10) | Death levels included | -0.173*** | -0.070* |
| (0.039) | (0.037) | ||
| (11) | Changes in number of infections and deaths excluded | -0.194*** | -0.102** |
| (0.038) | (0.043) | ||
| (12) | Weekday dummy variables excluded | -0.161*** | -0.073** |
| (0.038) | (0.036) | ||
| (13) | Stringency Index included | -0.161*** | -0.106** |
| (0.038) | (0.046) |