COVID-19, Government Response, and Market Volatility: Evidence from the Asia-Pacific Developed and Developing Markets

Izani Ibrahim,Kamilah Kamaludin,Sheela Sundarasen

doi:10.3390/economies8040105

Izani Ibrahim, Kamilah Kamaludin + Show 1 more

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https://doi.org/10.3390/economies8040105

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Abstract

This study examines the relationship between COVID-19, government response measures, and stock market volatilities for 11 developed and developing economies within the Asia-Pacific region. Our period of study is between 15 February–30 May 2020. Using the continuous wavelet transformation (CWT) analysis and plots and GJR-GARCH analysis, we examined the effects of the COVID-19 public health crisis and the corresponding government measures on the respective domestic equity markets volatilities. The CWT plots showed a varying level of market volatilities at different investment horizons. All the sample countries, except Japan, experienced very low or low volatility over the short-term horizons. In contrast, Vietnam, Malaysia, and Laos experienced medium volatility over the medium-term horizons. Finally, China, Japan, South Korea, Malaysia, and the Philippines experienced high volatility over the long-term horizons. The GJR-GARCH results further ascertain that market volatilities are affected by domestic events, notably, the COVID-19 government intervention measures. In most sample countries, the government measures significantly reduce market volatility in the domestic equity markets. Additionally, international events have also triggered market volatilities. Overall, our study offers several contributions and implications for practitioners and policymakers.

Highlights

The COVID-19 pandemic is pushing global economies into recession and reproducing financial market volatilities of the Great Depression of the 1930s and the Global Financial Crisis of 2008(Sharif et al 2020)
The top part of each graph examines the volatility of the stock market index using a continuous wavelet transform (CWT) method
This study uses the wavelet approach and GJR-GARCH analysis to examine the impact of COVID-19 and government measures on the equity market volatilities of selected developing and developed countries from the Asia-Pacific region

Summary

Introduction

The COVID-19 pandemic is pushing global economies into recession and reproducing financial market volatilities of the Great Depression of the 1930s and the Global Financial Crisis of 2008(Sharif et al 2020). Governments have responded swiftly by sanctioning lockdowns and social isolation to contain the spread of the disease, especially after the pandemic declaration by the World Health Organization (WHO). In response to this global economic downturn, countries worldwide have adopted wide-ranging and significantly large economic and financial stimulus packages to mitigate the destruction posed by the pandemic. The purpose of this study is to examine the relationship between COVID-19 daily infection cases, government response measures, and equity market volatilities for 11 developed and emerging economies within the Asia-Pacific region.

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