Assessing the impact of the coronavirus pandemic and non-pharmaceutical interventions on Bursa Malaysia KLCI Index using GARCH-M (1,1) models
-
DOIhttp://dx.doi.org/10.21511/imfi.21(3).2024.19
-
Article InfoVolume 21 2024, Issue #3, pp. 222-236
- 70 Views
-
16 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
This study aims to explore the impact of coronavirus pandemic-related variables and non-pharmaceutical interventions on fluctuations in the Malaysian stock market during the period from January 7, 2020, to March 31, 2021. By employing GARCH-M (1,1) family models (GARCH-M, EGARCH-M, and PGARCH-M), the study seeks to understand the intricate dynamics of market volatility amidst the pandemic and associated interventions. The findings suggest that while past market volatility and conditional variance continue to influence current market fluctuations, their effects have diminished over time during the study period. Additionally, the EGARCH-M (1,1) model reveals a leverage effect, indicating increased market volatility following negative news compared to positive news. Interestingly, the EGARCH-M (1,1) model emerges as the optimal choice for accurately capturing data dynamics. Conversely, the PGARCH-M (1,1) model does not exhibit a statistically significant leverage effect. These insights contribute to a better understanding of market behavior during crises, informing future research and risk management strategies.
Acknowledgment
The authors are grateful to the Middle East University, Amman, Jordan, for the full financial support granted to this research paper.
- Keywords
-
JEL Classification (Paper profile tab)C58, G01, G18, H12
-
References60
-
Tables7
-
Figures1
-
- Figure 1. Trends in coronavirus and the stock market in Malaysia
-
- Table 1. Descriptions of the variables
- Table 2. Descriptive statistics
- Table 3. Results of unit root test
- Table 4. Findings from the GARCH-M (1,1) model estimations
- Table 5. Findings from the EGARCH-M (1,1) model estimations
- Table 6. Findings from the PGARCH-M (1,1) model estimations
- Table 7. Forecast evaluations
-
- Aharon, D. Y., & Siev, S. (2021). COVID-19, government interventions and emerging capital markets performance. Research in International Business and Finance, 58, Article 101492.
- Ahmad, W., Hernandez, J. A., Saini, S., & Mishra, R. K. (2021). The US equity sectors, implied volatilities, and COVID-19: What does the spillover analysis reveal? Resources Policy, 72, Article 102102.
- Al-Alawnh, N. A. K., Habibullah, M. S., Sapar, R., Salameh, S. R., & Alzu’bi, S. K. (2024). Empirical analysis of government interventions on Jordan’s stock market during the COVID-19 pandemic: An ARDL approach. Asian Journal of Economic Modelling, 12(1), 76-92.
- Alam, M. N., Alam, M. S., & Chavali, K. (2020). Stock market response during COVID-19 lockdown period in India: An event study. Journal of Asian Finance, Economics and Business, 7(7), 131-137.
- Al-Awadhi, A. M., Alsaifi, K., Al-Awadhi, A., & Alhammadi, S. (2020). Death and contagious infectious diseases: Impact of the COVID-19 virus on stock market returns. Journal of Behavioral and Experimental Finance, 27, Article 100326.
- Aldhamari, R., Ismail, K. N. I. K., Al-Sabri, H. M. H., & Saleh, M. S. A. H. (2023). Stock market reactions of Malaysian firms and industries towards events surrounding COVID-19 announcements and number of confirmed cases. Pacific Accounting Review, 35(3), 390-411.
- Aliani, K., Alkayed, L., & Boujlil, Rh. (2022). COVID-19 effect on Islamic vs. conventional banks’ stock prices: Case of GCC countries. The Journal of Economic Asymmetries, 26, Article e00263.
- Ashraf, B. N. (2020). Economic impact of government interventions during the COVID-19 pandemic: International evidence from financial markets. Journal of Behavioral and Experimental Finance, 27, Article 100371.
- Aziz, N. A., Othman, J., Lugova, H., & Suleiman, A. (2020). Malaysia’s approach in handling COVID-19 onslaught: Report on the Movement Control Order (MCO) and targeted screening to reduce community infection rate and impact on public health and economy. Journal of Infection and Public Health, 13(12), 1823-1829.
- Bakry, W., Kavalmthara, P. J., Saverimuttu, V., Liu, Y., & Cyril, S. (2022). Response of stock market volatility to COVID-19 announcements and stringency measures: A comparison of developed and emerging markets. Finance Research Letters, 46, Article 102350.
- Bollerslev, T. (1986). Generalized autoregressive conditional heteroskedasticity. Journal of Econometrics, 31(3), 307-327.
- Bollerslev, T. (1987). A conditionally heteroskedastic time series model for speculative prices and rates of return. The Review of Economics and Statistics, 69(3), 542-547.
- Bora, D., & Basistha, D. (2021). The outbreak of COVID-19 pandemic and its impact on stock market volatility: Evidence from a worst-affected economy. Journal of Public Affairs, 21(4), Article e2623.
- Bouri, E., Naeem, M. A., Nor, S. M., Mbarki, I., & Saeed, T. (2022). Government responses to COVID-19 and industry stock returns. Economic Research-Ekonomska Istrazivanja, 35(1), 1967-1990.
- Busse, M., & Hefeker, C. (2007). Political risk, institutions and foreign direct investment. European Journal of Political Economy, 23(2), 397-415.
- Chaudhary, R., Bakhshi, P., & Gupta, H. (2020). The performance of the Indian stock market during COVID-19. Investment Management and Financial Innovations, 17(3), 133-147.
- Ding, Z., Granger, C. W. J., & Engle, F. (1993). A long memory property of stock market returns and a new model. Journal of Empirical Finance, 2(1), Article 98.
- Emenogu, N. G., Adenomon, M. O., & Nweze, N. O. (2020). On the volatility of daily stock returns of total Nigeria Plc: Evidence from GARCH models, value-at-risk and back testing. Financial Innovation, 6, Article 18.
- Endri, E., Abidin, Z., Simanjuntak, P., T., & Nurhayati, I. (2020). Indonesian Stock Market volatility: GARCH model. Montenegrin Journal of Economics, 16(2), 7-17.
- Engle, R. (1982). Autoregressive conditional heteroscedasticity with estimates of the variance of United Kingdom inflation. Econometrica: Journal of the Econometric Society, 50(4), 987-1007.
- Engle, R. (2004). Risk and volatility: Econometric models and financial practice. American Economic Review, 94(3), 405-420.
- Engle, R. (2020). Multi-regime forecasting model for the impact of COVID-19 pandemic on volatility in global equity markets. SSRN Electronic Journal, 6, 1-38.
- Fakhfekh, M., Jeribi, A., & Salem, M. B. (2023). Volatility dynamics of the Tunisian stock market before and during the COVID-19 outbreak: Evidence from the GARCH family models. International Journal of Finance & Economics, 28(2), 1653-1666.
- González, P. A., & Gallizo, J. L. (2021). Impact of COVID-19 on the stock market by industrial sector in Chile: An adverse overreaction. Journal of Risk and Financial Management, 14(11), Article 548.
- Guven, M., Cetinguc, B., Guloglu, B., & Calisir, F. (2022). The effects of daily growth in COVID-19 deaths, cases, and governments’ response policies on stock markets of emerging economies. Research in International Business and Finance, 61, Article 101659.
- Habibullah, M. S., Lau, E., Din, B. H., Rahman, M. D. A., & Shah, M. A. I. (2022). Long-run and short-run relationships between Covid-19 and the loss of employment in Malaysia: Evidence using GARCH-M, EGARCH-M and PGARCH-M models. Revista Portuguesa de Estudos Regionais, 60, 9-31.
- Habibullah, M. S., Saari, M. Y., Maji, I. K., Din, B. H., & Saudi, N. S. M. (2024). Modelling volatility in job loss during the COVID-19 pandemic: The Malaysian case. Cogent Economics and Finance, 12(1), Article 2291886.
- Harjoto, M. A., & Rossi, F. (2023). Market reaction to the COVID-19 pandemic: Evidence from emerging markets. International Journal of Emerging Markets, 18(1), 173-199.
- Hawaldar, I. T., Birau, R., Spulbar, C., Rohit, B., Pinto, P., Rajesha, T. M., & Di Sciorio, F. (2020). Further evidence on the efficiency of Bahrain Bourse: A high challenge for other industries. Industria Textile, 71(5), 458-466.
- Ibrahim, I., Kamaludin, K., & Sundarasen, S. (2020). COVID-19, government response, and market volatility: Evidence from the Asia-Pacific developed and developing markets. Economies, 8(4), Article 105.
- Jamison, J. C., Bundy, D., Jamison, D. T., Spitz, J., & Verguet, S. (2021). Comparing the impact on COVID-19 mortality of self-imposed behavior change and of government regulations across 13 countries. Health Services Research, 56(5), 874-884.
- Jindal, N., & Gupta, R. K. (2022). The impact of COVID-19 on stock market returns & volatility: A study of Thailand and Indian bourses. Thailand and the World Economy, 40(2), 145-167.
- Kadhim, K. G., Harun, A., Hamawandy, N. M., Qader, A. N., Khudhur, H. A., Kakil, R. M., & Ali, R. M. (2021). The measures to overcome the impact of Covid-19 on Malaysia economy. Turkish Online Journal of Qualitative Inquiry, 12(8).
- Keh, C. G., & Tan, Y. T. (2021). COVID 19: The impact of government policy responses on economic activity and stock market performance in Malaysia. Jurnal Ekonomi Malaysia, 55(1), 121-131.
- Khan, K., Zhao, H., Zhang, H., Yang, H., Shah, M. H., & Jahanger, A. (2020). The impact of COVID-19 pandemic on stock markets: An empirical analysis of world major stock indices. Journal of Asian Finance, Economics and Business, 7(7), 463-474.
- Kusumahadi, T. A., & Permana, F. C. (2021). Impact of COVID-19 on global stock market. Volatility, 36(1), 20-45.
- Latif, Y., Shunqi, G., Bashir, S., Iqbal, W., Ali, S., & Ramzan, M. (2021). COVID-19 and stock exchange return variation: Empirical evidences from econometric estimation. Environmental Science and Pollution Research, 28(42), 60019-60031.
- Limba, F. B., Rijoly, J. C. D., & Tarangi, M. I. (2020). Black swan global market: Analysis of the consequence of the COVID-19 death rate on the volatility of European football club stock prices. JMBI UNSRAT (Jurnal Ilmiah Manajemen Bisnis Dan Inovasi Universitas Sam Ratulangi), 7(3), 729-742.
- Liu, K. (2021). The effects of COVID-19 on Chinese stock markets: An EGARCH approach. Economic and Political Studies, 9(2), 148-165.
- Ncube, M., Sibanda, M., & Matenda, F. R. (2024). Investigating the effects of the COVID-19 pandemic on stock volatility in Sub-Saharan Africa: Analysis using explainable artificial intelligence. Economies, 12(5), Article 112.
- Nelson, D. (1991). Conditional heteroskedasticity in asset returns: A new approach. Econometrica, 59(2), 347-370.
- Nwosa, P. I. (2021). Oil price, exchange rate and stock market performance during the COVID-19 pandemic: Implications for TNCs and FDI inflow in Nigeria. Transnational Corporations Review, 13(1), 125-137.
- Okakwu, I. K., Oluwasogo, E. S., Ibhaze, A. E., & Imoize, A. L. (2019). A comparative study of time series analysis for forecasting energy demand in Nigeria. Nigerian Journal of Technology, 38(2).
- Onuorah, A. C., Ehiedu, V. C., & Ezekiel, O. (2022). COVID-19 crisis and stock market volatility in Nigeria. International Research Journal of Management, IT and Social Sciences, 9(3), 317-327.
- Özdemir, O. (2022). Cue the volatility spillover in the cryptocurrency markets during the COVID-19 pandemic: Evidence from DCC-GARCH and wavelet analysis. Financial Innovation, 8(1), Article 12.
- Park, S. E. (2020). Epidemiology, virology, and clinical features of severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2; coronavirus disease-19). Pediatric Infection and Vaccine, 27(1), 1-10.
- Raifu, I. A., Kumeka, T. T., & Aminu, A. (2021). Reaction of stock market returns to COVID-19 pandemic and lockdown policy: Evidence from Nigerian firms stock returns. Future Business Journal, 7(1), Article 35.
- Rowland, R., Chia, R. C. J., & Liew, V. K. S. (2023). Do non-pharmaceutical policies in response to COVID-19 affect stock performance? Evidence from Malaysia stock market return and volatility. PLOS One, 18(1), Article e0277252.
- Saif-Alyousfi, A. Y. H., & Saha, A. (2021). The impact of COVID-19 and non- pharmaceutical interventions on energy returns worldwide. Sustainable Cities and Society, 70, Article 102943.
- Shrimali, S., & Shrimali, D. (2021). Impact of lockdown announcement on stock prices of banking sector: An event study of Indian Stock market. Pacific Business Review Internationa, 13(7), 69-75.
- Sinaga, J., Wu, T., & Chen, Y-w. (2022). Impact of government interventions on the stock market during COVID-19: A case study in Indonesia. SN Business & Economics, 2(9), Article 136.
- Szczygielski, J. J., Bwanya, P. R., Charteris, A., & Brzeszczyński, J. (2021). The only certainty is uncertainty: An analysis of the impact of COVID-19 uncertainty on regional stock markets. Finance Research Letters, 43, Article 101945.
- Topcu, M., & Gulal, S. O. (2020). The impact of COVID-19 on emerging stock markets. Finance Research Letters, 36, Article 101691.
- Xie, L., Wang, M., & Huynh, T. L. D. (2022). Trust and the stock market reaction to lockdown and reopening announcements: A cross-country evidence. Finance Research Letters, 46(PA), Article 102361.
- Yong, J. N. C., Ziaei, S. M., & Szulczyk, K. R. (2021). The impact of Covid-19 pandemic on stock market return volatility: Evidence from Malaysia and Singapore. Asian Economic and Financial Review, 11(3), 191-204.
- Youssef, M., Mokni, K., & Ajmi, A. N. (2021). Dynamic connectedness between stock markets in the presence of the COVID-19 pandemic: Does economic policy uncertainty matter? Financial Innovation, 7(1), Article 13.
- Yu, H., Nartea, G. V., Gan, C., & Yao, L. J. (2013). Predictive ability and profitability of simple technical trading rules: Recent evidence from Southeast Asian stock markets. International Review of Economics & Finance, 25, 356-371.
- Yu, X., & Xiao, K. (2023). COVID-19 government restriction policy, COVID-19 vaccination and stock markets: Evidence from a global perspective. Finance Research Letters, 53, Article 103669.
- Zhang, N., Wang, A., Haq, N.-, & Nosheen, S. (2022). The impact of COVID-19 shocks on the volatility of stock markets in technologically advanced countries. Economic Research-Ekonomska Istraživanja, 35(1), 2191-2216.
- Zhuo, J., & Kumamoto, M. (2020). Stock market reactions to COVID-19 and containment policies: A panel VAR. Economics Bulletin, 40(4), 3296-3305.