Impact of COVID-19 Shocks on the Volatility of Stock Markets of Emerging Economies

Article Information

Title: Impact of COVID-19 Shocks on the Volatility of Stock Markets of Emerging Economies

Authors: Muhammad Ahsan Ali, Muhammad Nazam, Attaullah, Faiz Rasool, Muhammad Faheem Ullah

Journal: International Journal of Business and Economic Affairs (IJBEA)

HEC Recognition History

Category	From	To
Y	2024-10-01	2025-12-31
Y	2023-07-01	2024-09-30
Y	2022-07-01	2023-06-30
Y	2021-07-01	2022-06-30

Publisher: Global Illuminators

Country: Pakistan

Year: 2023

Volume: 8

Issue: 1

Language: English

DOI: 10.24088/IJBEA-2023-81009

Keywords: VolatilityStock Market indicesTARCHE_GARCHGARCH (11)

Abstract

The COVID-19 Outbreak has increased volatility in Pakistan relative to other growing countries on international stock markets. This study examines this phenomenon using the Threshold Generalized Autoregressive Conditional Heteroscedasticity (TGARCH) model. This daily time-dependent information flows into the market for PSX-listed equities are explained. This research aims to provide empirical evidence in favor of the TGARCH specification. Through COVID-19, we observed that the volatility of returns from developing countries significantly affects the Pakistani stock market, utilizing data from a selection of countries’ stock markets at their respective closing times between January 1, 2015, and April 30, respectively, 2022. Descriptive statistics, Correlation, and TGARCH Model were used to find the desired outcomes. In addition, findings indicate that the Bombay Stock Exchange (BSE) and Shanghai Stock Exchange (SSE) play a pivotal role in understanding the volatility of Pakistan, a developing nation. Despite the existence of the leverage effect during COVID-19, we were unable to find any correlation between the performance of stocks on the Dhaka Stock Exchange (DSE) and volatility on the Karachi Stock Exchange (KSE). The study will provide more information to investors, brokers and market players about the volatility of the financial markets.

Disclaimer: The following sections are produced through an intensive multi-stage analytical pipeline developed by DefinePK, utilizing advanced natural-language processing, domain-specific knowledge models, and automated cross-referencing systems. Despite the rigor and computational effort involved, the generated summary may still contain inaccuracies or incomplete interpretations. Users are strongly advised to verify all critical information against the original paper and its authoritative sources.

Research Objective

To examine the impact of COVID-19 shocks on the volatility of stock markets in emerging economies, specifically focusing on Pakistan, and to identify the influence of other emerging markets' stock market volatility on Pakistan's stock market.

Methodology

The study employed a quantitative approach using daily time-series data for stock market indices from Pakistan (KSE 100), India (BSE 100), Bangladesh (DSE 30), and China (SSE 380) for the period January 1, 2015, to April 30, 2022. Data analysis involved descriptive statistics, correlation analysis, and the Threshold Generalized Autoregressive Conditional Heteroscedasticity (TGARCH) model.

Methodology Flowchart

                        graph TD
    A["Data Collection: Stock Market Indices Jan 2015 - Apr 2022"] --> B["Data Analysis: Descriptive Statistics & Correlation"];
    B --> C["Model Application: TGARCH"];
    C --> D["Results Interpretation"];
    D --> E["Conclusion & Implications"];

Discussion

The study highlights that while the COVID-19 pandemic increased volatility in emerging stock markets, the influence of other markets on Pakistan's market varies. The BSE and SSE are found to be influential, whereas the DSE's impact is minimal. The TGARCH model's effectiveness in capturing the asymmetric impact of news on volatility is confirmed. The findings suggest that investors and market players need to be aware of these interdependencies and the asymmetric nature of volatility during crises.

Key Findings

The Bombay Stock Exchange (BSE) and Shanghai Stock Exchange (SSE) play a significant role in understanding the volatility of the Pakistani stock market. The Dhaka Stock Exchange (DSE) has a negligible impact on the volatility of the Karachi Stock Exchange (KSE). The TGARCH model provides empirical support for accounting for the time-dependent nature of daily news flow in the market. A leverage effect was observed, indicating that negative news (like the pandemic) impacts conditional variance more than positive news.

Conclusion

The COVID-19 pandemic significantly impacted the volatility of emerging stock markets, with varying degrees of influence between different markets. The study confirms the relevance of the TGARCH model in analyzing these dynamics and underscores the importance of considering external market influences on Pakistan's stock market. The findings offer insights for investors, regulators, and policymakers in managing portfolio diversification and volatility during such crises.

Fact Check

1. Data Period: The study utilized data from January 2015 to April 2022. (Confirmed in Methodology section).
2. Key Markets Analyzed: The study included stock market data from Pakistan (KSE 100), India (BSE 100), Bangladesh (DSE 30), and China (SSE 380). (Confirmed in Methodology section).
3. Model Used: The primary econometric model employed was the Threshold Generalized Autoregressive Conditional Heteroscedasticity (TGARCH) model. (Confirmed in Abstract and Methodology section).

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