The Egyptian stock market's reaction to the COVID-19 pandemic

Abstract

PurposeThe purpose of this study is to empirically examine the impact of the novel coronavirus (COVID-19) on Egyptian stock market returns and volatility between July 2018 and June 2021.Design/methodology/approachThis study utilizes a generalized autoregressive conditional heteroskedasticity (GARCH) model to examine the impact of COVID-19 on two basic stock market indices (EGX30 and EGX100). In addition, the heteroskedasticity corrected model (HCM) was employed to differentiate between the effects of each subsequent wave of the pandemic.FindingsThe results of the GARCH model revealed that all COVID-19 variables have a significant impact on the daily returns of EGX100, but an insignificant impact on that of EGX30. The mortality rate and transmission speed increased the market volatility of EGX30 daily returns. The results of the HCM confirmed that the Egyptian stock market reacted more nervously to the first wave than to the second, while the impact was not detected in the third wave.Practical implicationsThis study provides useful insights to investors and policymakers in handling the negative influence of unanticipated events. To retain economic stability, the Egyptian government can impose fiscal stimuli and consider policies to combat the impact of the pandemic.Originality/valueThis study is one of the first attempts to differentiate between the effects of subsequent waves of the pandemic on the stock market in Egypt, one of the largest economies in Africa.