Determining the Appropriate Time Series Model for the Malaysia Stock Price during Continuous Pandemic Waves: Case of COVID-19

Nor Alwani Omar ,Ezzah Suraya Sarudin,Salina Mad

doi:10.6007/ijarbss/v11-i10/11172

Abstract

As the series of COVID-19 outbreaks was reported and the declaration of this disease as pandemic, the global financial market, including Malaysia has affected. The uncertainty of this pandemic has led to larger volatility and an appropriate time series model are required to guarantee that the market players made a wise investment decision. Therefore, this study aims to investigate the movement of FTSE Bursa Malaysia stock indices and determine the appropriate model for the sample period. We included the daily data from January 2020 to August 2021 to overview the stock market volatility and Autoregressive Integrated Moving Average (ARIMA) was applied to determine a reliable model. The Generalized Autoregressive Conditional Heteroscedasticity (GARCH) models then was fitting in when the presence of heteroscedasticity in the data set was discovered. The result has shown that ARIMA (1,2,1) – GARCH (1,1) is the fitted model and the volatility was well-determined during the pandemic. In addition, the existence of leverage effect was confirmed using Exponential GARCH (EGARCH) and a positive risk premium was detected using Symmetric Mean GARCH (GARCH-M). Finally, it is recommended for researchers to use an extended sample period to see the behaviour of the stock market when Malaysia vaccination program has completed.

Highlights

The Coronavirus (COVID-19) outbreak was later announced as a pandemic has negatively hit the financial market as most countries started implementing the movement restriction and closure of business activities (Toda, 2020). Baldwin and Mauro (2020) stated that the economic system was undergoing a few blows, which are the reduction in household spending, disruption in the import and export activities, and lastly, the "wait-and-see" approach will affect the manufacturing sector
The risk is usually uncertain for the investor, and the huge up and downshifts in both developed and emerging markets are regular in the financial market
In fighting the spread of COVID-19 for the past two years, the Malaysian stock market has faced an enormous challenge in keeping its volatility

Summary

Introduction

The Coronavirus (COVID-19) outbreak was later announced as a pandemic has negatively hit the financial market as most countries started implementing the movement restriction and closure of business activities (Toda, 2020). Baldwin and Mauro (2020) stated that the economic system was undergoing a few blows, which are the reduction in household spending, disruption in the import and export activities, and lastly, the "wait-and-see" approach will affect the manufacturing sector. The Coronavirus (COVID-19) outbreak was later announced as a pandemic has negatively hit the financial market as most countries started implementing the movement restriction and closure of business activities (Toda, 2020). Ozili (2020) highlighted that the COVID-19 pandemic had disrupted the stock market by shutting down the business and corporate activities. When China decided to implement a lockdown to control the widespread of the disease, this has affected the supply and demand throughout the world and negatively impacted Malaysia's economic system. The pandemic has significantly impacted Malaysia's financial markets, especially with the implementation of travel restrictions, social distancing, lockdowns and massive unemployment that have struck economies for almost two years. That had increased the volatility of the stock market; modelling them is essential. That had increased the volatility of the stock market; modelling them is essential. Shehzad et al (2020) show that the Asian market was less affected by COVID-19 than the European market

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Conclusion