Abstract:
Since the onset of the 21st century, the US and global financial markets have achieved all time high returns and seen immense benefits from an ever more globalizing world and economy. Markets have also experienced two of the most devastating financial crises since the Great Depression, the 2008 financial crisis and the Covid-19 pandemic. Despite the differences in both crises, the purpose of this thesis is to conduct a qualitative comparative analysis of the uncertainty during both crises and how news, good and bad, changes uncertainty. We will specifically look at two different measures of uncertainty, the VIX index and the EPU US Daily News index. Although there is not an industry standard in how to account for future market uncertainty, this thesis attempts to begin to understand the relationship between news and uncertainty using metrics of past uncertainty. Further, this thesis attempts to understand the effectiveness of using various proxies as measurements for uncertainty. This thesis will ultimately focus on using volatility as a proxy for uncertainty, which can be seen using modeling with the VIX index. In this thesis, I will discuss the theoretical background behind market uncertainty and why it is important to be studied. I also will briefly discuss the main events of each crisis, then empirically analyze the relative impact of good and bad news on market uncertainty in both crises.