The Impact of COVID-19 on the Connectedness of Stock Index in ASEAN+3 Economies

Abstract

This paper explores the impact of the COVID-19 pandemic on the connectedness of stock indexes in the group of developed and emerging economies known as the ASEAN+3. We derived our empirical findings from the Diebold and Yilmaz (DY12) and Baruník and Křehlík (BK18) spillover methods, using daily data from 10 May 2005 to 24 February 2021. We show that the COVID-19 pandemic has had a bigger impact on the return and volatilities of ASEAN+3 stock markets than previous economic turmoil, such as the 2008 global financial crisis and the 2009–2012 European debt crisis. Using a frequency domain methodology, we find evidence that return spillovers mostly occur in the short-term, while volatility connectedness is more pronounced in the long-term. The Singapore stock market primarily acts the as top transmitter in returns and volatilities, whereas Vietnam has become the top receiver of shocks in returns. We also demonstrate that it is possible to replicate the frequency-domain connectedness measures of BK18 with a DY12 methodology. Using a series decomposed with a wavelet-based approach, we find that the total spillover indices for short-, medium-, and long-term frequencies computed with the DY12 approach are comparable to the within connectedness indices of BK18. Our results have important policy implications for investors, regulators, and policy makers.

Connectedness analysis of price return index among Malaysian economic sectors

“…They should also look at the spillover on a firm level for the most impacted sectors, taking into account the market capitalisation of the companies within, assuming that small businesses will be more affected by the pandemic than larger businesses. To alleviate country-level systematic risk, return and volatility spillovers among advanced economies and emerging markets (for example, see Aziz et al , 2022) can be considered for portfolio formation, allowing for international diversification benefits.…”

The Impact of Ukrainian Crisis on the Connectedness of Stock Index in Asian Economies

“…The results contended that the lockdown period had a positive impact on stock returns in the Vietnamese market. Moreover, Aziz et al [8] investigate the dynamic connectedness among developed and ASIAN+3 * stock markets between 2005 and 2021. The study concludes that COVID-19 exhibited the most severe impact on return and volatility spillovers among these markets, as compared to the GFC and the European debt crisis.…”

“…The previous empirical works focused on the impact of the global financial crisis of 2008 and the COVID-19 pandemic on the stock market's performance in Asia, such as [1][2][3][4][5][6][7][8]. Nevertheless, limited number of empirical works attempting to study the impact of this ongoing conflict on stock markets performance to investigate the effect of the Ukrainian crisis on performance of large sample of stock markets [9,10].…”

Evidence of COVID-19’s financial epidemiology on the ASEAN-5 stock indices

“…In addition, to date, no empirical research has applied the wavelet method to verify and confirm the COVID-19 impact on each of ASEAN-5 stock markets. Previous studies use the wavelet method exclusively to analyze the pandemic's impact on ASEAN-5 connectedness in terms of regional stock market association (Aziz, Ahmad, Zichu, & Nor, 2022), the co-movement of developed and emerging stock indices (Kamaludin et al, 2021), and exchange rates (Shahrier, 2022). To the best of our knowledge, this is the first empirical study to use the continuous wavelet transform (CWT) approach to investigate the shocks caused by the COVID-19 pandemic throughout the ASEAN-5 stock markets with both time and frequency settings.…”