Effects of the COVID-19 pandemic on stock market returns and volatilities: evidence from selected emerging economies

Abstract

Purpose The purpose of this paper is to investigate the effects of exchange rate volatility, oil price return and COVID-19 cases on the stock market returns and volatility for selected emerging market economies. Additionally, this study compares the market performance in the emerging economies during the COVID-19 pandemic with the pre-COVID and global financial crisis (GFC) period. Design/methodology/approach The authors apply the arbitrage pricing theory to model the risk-return relationship between the risk-based factors (exchange rate volatility and COVID-19 cases) and stock market returns. By applying the exponential generalized autoregressive conditional heteroskedasticity model, the study captures the asymmetric volatility spillover from the stock markets to foreign exchange markets and vice versa. Findings Findings reveal that exchange rate volatility exerts a negative and significant effect on the market returns in Brazil (BOVESPA), Chile (S&P CLX IPSA), India (SENSEX), Mexico (S&P BMV IPC) and Russia (MOEX) during the coronavirus pandemic. Regarding the effect of oil price returns, the authors find a positive relationship between oil price and stock market returns across all the economies in the study. The market returns of Russia, India, Brazil and Peru appeared more volatile during the pandemic than the GFC period. Practical implications As the exchange rate volatility is causing higher risk and uncertainty in the stock market’s performance, the central bank’s effort to maintain a stabilizing effect on the exchange rate sale can be proven crucial for the economies under consideration. Emphasized should also be given to boost investors’ confidence in the stock market, and for this, the government policy actions in reducing the transmission of the disease are the need of the hour. Originality/value While a large volume of literature on stock market performance in times of COVID-19 has emerged from developed economies, this study adds to the literature by exploring the emerging economies’ stock market performance during the COVID-19 pandemic. Unlike previous literature, this study examines the volatility spillover between stock and exchange rate markets in the worst affected emerging economies during the crisis.

Pengaruh COVID-19 terhadap Tingkat Pengembalian Saham, Nilai Tukar dan IHSG sebagai Variabel Kontrol

“…Namun sejalan dengan penelitian (Indrastuti, 2021), yang menyatakan bahwa hal ini disebabkan oleh pandangan para investor terhadap pandemi ini sebagai sebuahb peluang keberuntungan, dan fokus dalam investasi jangka panjang. (Rakshit & Neog, 2021) juga menjelaskan tidak adanya pengaruh yang signifikan dari berita akan kasus baru dan kasus kematian akibat covid-19 terhadap pengembalian harga saham.…”

Mapping the global Islamic equity market vis-à-vis the COVID-19 turbulence

“…On the other hand, Majid and Kassim (2010) stated that the very fast growth in the Islamic capital market has triggered a lot of attention to understand the value of integration of various countries that offer Islamic stock indexes in the interest of building a global Islamic stock portfolio. Although there is a high integration value between countries, it is still possible to diversify because each country still has various geopolitical and economic conditions with their respective advantages and disadvantages especially related to the COVID-19 crisis (Harjoto & Rossi, 2021;Rakshit & Neog, 2021). Although market in general reacts negatively to the COVID-19 reported cases (Jamaani, 2021), Islamic finance has been empirically shown to have better performance during this crisis (Akkas & Al Samman, 2021;Sugiharto et al, 2021).…”

The impact of COVID-19 induced panic on stock market returns: A two-year experience

“…Google Trends data on coronavirus-related searches is also used as a proxy for panic and fear ( Goodell and Huynh, 2020 , Lee, 2020 , Hevia et al, 2020 , Lyócsa et al, 2020 , Ramelli and Wagner, 2020 ). Similarly to other previous studies (e.g., Baig et al, 2021 , Cepoi, 2020 , Haroon and Rizvi, 2020a , Umar and Gubareva, 2020 , Umar et al, 2021 , Rakshit and Neog, 2021 ), our study examines, in contrast, the impact of media coverage on investors, using media coverage indexes provided by RavenPack, a provider of data analytics for financial services, as an indicator of investor fear. In particular, we examine three daily indexes that reflect different aspects of media coverage of COVID-19, namely the percentage of media outlets (Infodemic Index, II), the number of news sources (Media Coverage Index, MCI), and the amount of news (Media Hype Index, MHI) mentioning COVID-19.…”

“… Akhtaruzzaman et al, 2021 , Yu et al, 2021 ) and even emerging countries (e.g. Haroon and Rizvi, 2020b , Topcu and Gulal, 2020 , Rakshit and Neog, 2021 , Yu et al, 2021 ). In our study, we examine the major developed and emerging economies.…”