Impact of Covid-19 Pandemic and Government Interventions on the Stock Market Performance of Various Sectors in Bursa Malaysia

Tan, Young Han (2022) Impact of Covid-19 Pandemic and Government Interventions on the Stock Market Performance of Various Sectors in Bursa Malaysia. Masters thesis, Tunku Abdul Rahman University College.

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Abstract

Stock market is an essential component in developing the macroeconomic of a nation. However, apart from the disastrous health ramifications, the worsening COVID-19 pandemic throughout the country has generates an unprecedented risky environment resulting from the relevant blockade implementations along with pessimistic economic prospects. Thereby, it is necessary to examine the implications of COVID-19 pandemic on the volatility in Bursa Malaysia stock exchange and thus, this paper aims to analyse the impact of the daily confirmed cases of COVID-19 in Malaysia under various containment measures on the KLCI index daily returns along with its eight constituent sectors’ indices for the time period between January 29, 2020 until March 31, 2021. The study employs the Multivariate Generalised Autoregressive Conditional Heteroscedasticity (MGARCH) model in gauging the implications over the entire period of study, as well as over four sub-periods, i.e., the pre-government intervention, Movement Control Order (MCO), Conditional Movement Control Order (CMCO) and Recovery Movement Control Order (RMCO). Referring to the analyses, this research concludes that no significant negative associations between COVID-19 and stock indices returns during the overall period. On top of that, this study highlights a significant increase in the return volatilities of the several indices on the basis of an adverse market reaction during the pandemic, followed by high coefficients of the conditional variance specifications. Meanwhile, the subsequent analyses imply that significant differences between the effects of COVID-19 and the Bursa Malaysia sectors’ indices under various MCO implementations prevail. In brief, the riskiness of each sectors’ indices alters accordingly where sectors such as Kuala Lumpur Energy Index, Kuala Lumpur Real Estate Investment Trusts Index and Kuala Lumpur Technology Index are identified to be more volatile than other indices with statistically significant positive ARCH parameters. Besides, all the selected indices appear to have less volatility during the MCO period. Further, the KL technology index return became more volatile and the return was depending on previous information during the third sub-period analysis and lastly, the KL industrial index as well as the KL REITs index performed with significant coefficient of ARCH terms. Moreover, significant differences among sectors were also observed with dynamic volatility persistent measures during various sub-periods. The empirical outcomes have several research implications such as the policymakers should formulate the best measures by concentrating more on the vulnerable sectors as demonstrated in the empirical results. Moreover, investors with enhanced knowledge on the nexus of both indices’ returns and COVID-19 may benefit by making the optimal informed investment decisions and determining appropriate investment strategies during periods of financial shocks.