The Impact of Covid-19 Pandemic on Stock Market Return Volatility: Evidence from Malaysia and Singapore

Abstract

In this study, the volatility of two Asian stock markets, Bursa Malaysia and Singapore Exchange, is estimated. The analysis used data on daily closing prices of the indices of the respective stock markets between July 1, 2019 and August 31, 2020. The sample is split into two subsample periods: Pre-COVID-19 pandemic and during the COVID-19 pandemic. We estimated a standard GARCH, GARCH-M, TGARCH, EGARCH and PGARCH model for each subsample. We chose the best GARCH that yielded the lowest Schwarz information criterion for the normal, skewed normal, Student's tdistribution, skewed Student's t-distribution, generalized error distribution (GED) and skewed GED. The results show that both stock market returns are quite persistent, and the persistence decreases for both stock market returns during the pandemic. Furthermore, the normal distribution performed well for Malaysian and Singaporean stock markets before the pandemic and switched to a Student's t (skewed normal) during the pandemic. The standard GARCH(1,1), GARCH-M(1,1), and EGARCH(1,1) performed well for both stock market returns, and the EGARCH indicates the presence of the leverage effect when stock market returns are negatively correlated to its volatility. Contribution/Originality: In this study, the volatility of the Malaysian and Singaporean stock market returns is examined and estimated with various GARCH models with different probability distributions in the loglikelihood function. The COVID-19 pandemic has altered the distributional properties of the GARCH models.

Impact of Covid-19 pandemic on stock market returns volatility of Gulf Cooperation Council countries

“…Moreover, the coefficients of the GARCH ( ) θ parameter were positive and statistically significant at the 1% level in all stock markets, in-dicating that the previous period of volatility led to the current period's volatility. This result confirmed the results of Gherbi and Alsedrah (2021), Yong et al (2021), and Bahrini and Filfilan (2020). Finally, the coefficients fulfilled all the conditions for stability (s).…”

“…The significance of the persistence of negative shocks, known as volatility asymmetry, implies that investors were more sensitive to bad than good news, suggesting the existence of an asymmetric volatility spillover mechanism. This result supported the previous findings of Yong et al (2021), Choi and Jung (2021), and Yousfi et al (2021). Finally, it was noticed that the results of the asymmetric estimators in the EGARCH model were better than the results of the TGARCH model.…”

“…The second pandemic wave led to further decreases in certain sectors, especially the food and beverage sector. Yong et al (2021) applied the GARCH family model to examine daily data from Bursa Malaysia and the Singapore Exchange from July 1, 2019, to August 31, 2020, finding the stock returns to be relatively stable, while the stock returns fell in both stock markets at the advent of the COVID-19 outbreak. Yousfi et al (2021) employed the multivariate GARCH model from January 5, 2011 to September 21, 2020 to examine the US and Chinese stock markets, discovering indirect fluctuations between the stock markets in the US and China.…”

Volatility Forecasting Performance of Smooth Transition Exponential Smoothing Method: Evidence from Mutual Fund Indices in Malaysia

“…Table7shows the best-fitting GARCH model. Both the EGARCH and GJR-GARCH models under non-normal error term distribution (Stud-t and GED) are the best-fitting models in both sub-periods, implying the existence of both the asymmetry effect and the leverage effect, which are well captured by both models, and concur with past studies(Alberg et al, 2008; Angabini & Wasiuzzaman, 2011;Chuan, Mahdi, & Kenneth, 2021;Dritsaki, 2017;Hamilton & Susmel, 1994;Kuhe, 2018;Lim & Sek, 2013;Musa et al, 2020;Peters, 2001;Shamiri & Isa, 2009;Wilhelmsson, 2006).…”

How COVID-19 induced panic on stock price and green finance markets: global economic recovery nexus from volatility dynamics

“…On the other hand, several evidences posit that the COVID-19 outbreak increases the number of contagion pathways in international financial system (Guo et al 2021 ). This is further supported by the availability of various global stock market interconnections before and after the epidemic (Zhang et al 2020 ) and that internationally focused companies were underperforming during the onset of the epidemic (Chuan et al 2021 )…”