Risk Measurement and Stock Prices during the COVID-19 Pandemic: An Empirical Study of State-Owned Banks in Indonesia

Abstract

The current COVID-19 pandemic has changed the way people live their lives around the world. More than a decade after the global financial crisis, the world is struggling with the health and economic effects of a profound new crisis caused by the COVID-19 pandemic. It also affected the Indonesian stock market in almost every sector. Besides, the performance of the stock market of financial industries has also been significantly affected, particularly four state-owned banks. This study aimed to analyze the potential loss from investing in the stock market of such government banks for the next 15 days by revisiting value at risk (VaR) as a tool for measuring the maximum loss. The findings suggest that Autoregressive AR (1)-GARCH (1) is a good fit for the determination of the mean and variance model, which were used to calculate the VaR of each bank. VaR measurement for all banks shows a negative sign that indicates the maximum loss of investors from holding any of those banks' stocks for a projected time horizon. Risk measurement will be one of the things that will be considered by investors when investing in the financial market. The results of the study suggest that investors who have funds in state-owned banks should reconsider their investments.