Abstract
The study investigates the effect of the Covid-19 on the volatility of the technology and healthcare sector stock index in Malaysia. The two sectors pose considerable attention during the pandemic due to the increase in demand for healthcare products and digital services. The volatilities are estimated using the GARCH model for the period before and after the implementation of the nationwide movement order control using daily data from September 2019 to September 2020. The finding shows that the Covid-19 pandemic caused a volatility jump for the technology sector index in March 2020 but subsided afterward with estimated conditional volatility revert to normal in the middle of April 2020. However, during the high uncertainty period, the healthcare sector shows a steady increase in volatility beginning in March 2020 till the end of September 2020. The study confirms that there is a significant difference in the volatility of healthcare and technology sectors before and during the Covid-19 outbreak. The outbreak has a significant impact on increasing the volatilities for both sectors but is impacted in different magnitude.
Highlights
The study confirms that there is a significant difference in the volatility of healthcare and technology sectors before and during the Covid-19 outbreak
Where Δĥt is the changes in the healthcare or technology sector index return volatility, Caset−1 is the number of new daily Covid-19 cases, Deatht−1 is the number of new daily death due to Covid 19, VIXt−1 is the Chicago Board Options Exchange (CBOE) volatility index as a measure of global uncertainty, β are the parameters to be estimated and εt is the error term
This paper investigates the Covid-19 effect on the volatility of the healthcare and technology sector in the Malaysian stock market
Summary
Upon the declaration of COVID-19 as a global pandemic by the World Health Organisation (WHO) on March 11, 2020, the world economies are facing a new level of uncertainty as most countries adopt strict quarantine policies to curb the contagious disease ([1], [2], [3] and [4]). Studies by [9], [10] [11], and [12] find a significant negative effect of the pandemic based on the number of cases on the stock market from March to April 2020. Though overall stock markets are negatively affected by the emergence of Covid-19 in March 2020, some sectors are reported to perform better during the pandemic. Motivated by the existing findings, the present study aims to examine the technology and healthcare sectors’ return volatility using the GARCH model before and during the COVID-19 pandemic in Malaysia. Securities Commission and Bursa Malaysia have implemented several measures following heightened volatility and global uncertainties including temporarily suspended of shortselling beginning March 23, 2020, extended until 31 December 2020 [24].
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