The Effect of COVID-19 in Malaysia Stock Market

Law, Yann Shaw (2025) The Effect of COVID-19 in Malaysia Stock Market. Final Year Project (Bachelor), Tunku Abdul Rahman University of Management and Technology.

Text Law Yann Shaw_Full Text.pdf Restricted to Registered users only Download (1MB)

Abstract

This study analyses the impact of COVID-19-related factors and macroeconomic variables on the performance of the Kuala Lumpur Composite Index (KLCI) during the COVID-19 pandemic in Malaysia. The independent variables include log-transformed COVID-19 confirmed cases, COVID-19 death cases, Movement Control Order (MCO), inflation rate, and unemployment rate. Using monthly time series data, the research applies the Autoregressive Distributed Lag (ARDL) model and its Error Correction Model (ECM) form to explore both long-term and short-term relationships. Unit root tests, ARDL bounds testing, and diagnostic checks were conducted to ensure the validity and stability of the model. The results reveal a statistically significant long-run relationship between the KLCI and the selected variables. In the long run, unemployment and MCO are significant, with unemployment having a negative effect and MCO showing a positive influence on the KLCI. In the short run, unemployment and the first lag of inflation show positive and significant impacts, while the first lag of COVID-19 confirmed cases and first lag of MCO exhibit significant negative effects. Additionally, the third lag of MCO and the first lag of COVID-19 death cases have positive and significant short-run effects. Inflation is insignificant in the long run, while COVID-19 death cases and confirmed cases are largely insignificant except at specific lags. These findings suggest that investor responses to pandemic-related developments and economic conditions varied across time horizons. Short-run reactions appear driven by immediate sentiment and policy announcements, whereas long-run impacts reflect broader economic expectations. The stability of the model, confirmed through CUSUM and CUSUMSQ tests, further reinforces the robustness of these results.