Stock Market Return Volatility Research Articles

The effects of the COVID-19 pandemic period on stock market return and volatility. Evidence from the Pakistan Stock Exchange.

The COVID-19 pandemic has emerged as a significant event of the current century, introducing substantial transformations in economic and social activities worldwide. The primary objective of this study is to investigate the relationship between daily COVID-19 cases and Pakistan stock market (PSX) return volatility. To assess the relationship between daily COVID-19 cases and the PSX return volatility, we collected secondary data from the World Health Organization (WHO) and the PSX website, specifically focusing on the PSX 100 index, spanning from March 15, 2020, to March 31, 2021. We used the GARCH family models for measuring the volatility and the COVID-19 impact on the stock market performance. Our E-GARCH findings show that there is long-term persistence in the return volatility of the stock market of Pakistan in the period of the COVID-19 timeline because ARCH alpha (ω1) and GARCH beta (ω2) are significant. Moreover, is asymmetrical effect is found in the stock market of Pakistan during the COVID-19 period due to Gamma (ѱ) being significant for PSX. Our DCC-GARCH results show that the COVID-19 active cases have a long-term spillover impact on the Pakistan stock market. Therefore, the need of strong planning and alternative platform should be needed in the distress period to promote the stock market and investor should advised to make diversified international portfolio by investing in high and low volatility stock market to save their income. This study advocated the implications for investors to invest in low volatility stock especially during the period of pandemics to protect their return on investment. Moreover, policy makers and the regulators can make effective policies to maintain financial stability during pandemics that is very important for the country's economic development.

EFFECT OF MACROECONOMIC DYNAMICS ON STOCK MARKET RETURN VOLATILITY IN NIGERIA: ARDL APPROACH

The study looked at how macroeconomic factors influenced stock market return volatility in Nigeria. To achieve this goal, macroeconomic dynamics were proxied with Money Supply (MS), Interest Rate (INTR), Exchange Rate (EXCHR), Inflation Rate (INFLR), and Real Gross Domestic Product Growth Rate (RGDPGR), while stock market (SMKT) return volatility was proxied by All Share Index Volatility (ASIV). The information was gathered from the CBN Statistical Bulletin from 1985 to 2021. It was then analysed using Descriptive Statistics, Unit Root Test, and Autoregressive Distributive Lag (ARDL) analysis. The data demonstrated that MS has a positive inconsequential influence on ASIV in the short run but a positive consequential impact on ASIV in the long run, as shown by p-values (0.0588 and 0.0534) in the short and long runs, respectively; INTR has a negative impact on ASIV in both the short and long runs. It has p-values of 0.4590 and 0.0473, indicating no statistical significance in the short run but a substantial effect in the long run; EXCHR has a negative, insignificant impact on ASIV in both the short and long term. Its p-values (0.3071 and 0.3046) are also more than the 5% level of significance; INFLR has a detrimental impact on ASIV both short and long term. It has p-values of 0.1258 and 0.1374, indicating that there is no statistical significance in the short and long runs, and that RGDPGR has a positive impact on ASIV in both the short and long runs. It exhibits p-values of 0.5314 and 0.5293, indicating no statistical significance in the short and long term. As a result, it was determined that macroeconomic dynamics have no significant impact on SMKT return volatility in Nigeria. This means that politicians and regulators must ensure that the money supply and exchange rates remains steady overall. They should also endeavour to curb inflationary trends and keep interest rates constant in the economy so that the SMKT can perform better and achieve the desired economic growth and national development.
 Keywords: Macro, Economic, Dynamics, Stock, Market, Return and Volatility.

The impact of the environmental, social and governance dimensions of sustainability on firm risk in the hospitality and tourism industry

AbstractThis paper explores the relationship between adherence to corporate social responsibility goals and firm financial risk. Data on an international sample of 209 firms were collected for the period 2002 to 2022. Firm risk was proxied using stock return volatility and probability of default. The results show that the environmental performance of hospitality and tourism firms unequivocally influences firm risk, whether this risk is quantified as probability of default or volatility of stock market returns. This finding confirms that the adoption of environmentally sustainable and responsible practices is crucial not only for the environment but also for the stability of hospitality and tourism firms.

Impact of COVID-19 Pandemic and Russo-Ukrainian War on Tunisian Stock Exchange Performance and Volatility

The purpose of our study was to investigate the impact of COVID-19 pandemic and the Russo-Ukraine (RU) war on the return volatility and value of the Tunisian Stock Exchange proxied by TUNINDEX. We applied GARCH (1,1) to assess the impact on the index return volatility, using daily observations from January 2019 to December 2022, and a multiple linear regression to determine the effect on the index value, based on monthly observations for January 2018 to December 2022. GARCH output revealed that both exogenous shocks led to higher stock market return volatility. The regression results disclosed statistically significant though opposite impacts on the index price. The pandemic exerted a positive, though extremely mild impact on the Index value, while the war had a negative effect on its performance. As for the control variables, both inflation rate and industrial production index exhibited positive effects on the TUNINDEX values, while trade balance had a negative impact. GDP growth rate and interest rate however, showed no significant influence on the index performance during the study period. We faced some difficulty accessing data, in addition to the scarcity of data on other potentially relevant factors, along with a short study period. Incorporating new variables i.e. mortality rates, unemployment due to the lockdown, travel bans effect, trade dependence with Ukraine and Russia, and using Time-Varying Vector Auto Regressive model may add additional value to our work. The paper contributes to the literature on external shocks impacts on stock markets, specifically on the Tunisian stock exchange. In addition, it offers insights on the potential expected economic effects of unpredicted events, and may help identify appropriate strategies to mitigate their dramatic effects. Finally, this research presents the first investigation on the impact of the Russian invasion on Ukraine on the Tunisian stock exchange by probing into the impact on both volatility and performance of the market’s index.

Did Feds Rate Policy Benefit U.S. Company: Evidence from Tesla

This paper studies the impact of the Federal Reserve's interest rate policy on American companies, taking Tesla as evidence. Data on the Tesla stock as well as the USD/RMB exchange rate for the previous year were gathered. The impact of a rising exchange rate on companies goes in two directions. On the one hand, the appreciation of the dollar means the depreciation of foreign operating income, and the depreciation of the domestic currency is bad for exports. On the other hand, it will affect how the stock market operates. An increase in dollar holdings in international financial markets would increase the demand for stocks, which would increase stock prices. The conclusion is that the Fed's interest rate policy to control inflation in the United States has, to some extent, come at the expense of stock market growth. The VAR model and ARMA-GARCH model were used to model and analyze the data, and forecast the trend of the company's stock price, then make recommendations for policymakers and investors. For policymakers, it is necessary to adjust the policy appropriately to minimize the volatility of stock market returns, and investors should turn to assets with lower risk instead of blindly investing.

Can market risk explain the systemic risk? Evidence from the US banking industry

PurposeThis paper sheds light on the impact of market risk measures on systemic risk. Market risk, which is captured by the volatility of stock market returns, is also decomposed into systematic and idiosyncratic risks.Design/methodology/approachThe author uses the five-factor asset pricing model and systemic risk methodologies to derive market and systemic risk measures, respectively. Using a sample of 2,667 US banks for over 30 years and employing panel data estimation techniques, the author tests the said relationship.FindingsIt is shown that idiosyncratic risk can surge systemic risk, while systematic risk plays a less important role. Results survive a battery of tests, including different systemic risk measures, controlling causality and interacting with bank size, market fear and crisis periods.Practical implicationsThese findings call for regulatory intervention, especially for large banks with high idiosyncratic risk.Originality/valueThis is the first paper that provides a more granular picture of the relationship between market and systemic risk from the US banking industry for more than 30 years.

Indonesian Stock Market Return Volatility and Foreign Portfolio Capital: Evidence Before and During Covid-19 Pandemic

The Covid-19 pandemic increased uncertainty in the Indonesian stock market. This paper aims to investigate foreign and domestic investors' behavior in the Indonesian stock market, especially during the Covid-19 pandemic. The method used was E-GARCH and DCC-GARCH. The results showed that the impact of shocks from bad and good news was greater on the return volatility during the pandemic. The shocks had a positive impact on the increase in the spillover effect of NFI's volatility to return volatility in the short and long term before the pandemic, but this did not happen during the pandemic. There is an indication of bias of forecasting errors and prospect theory in the behavior of investors in the Indonesian stock market. Conservatism bias is also indicated in the behavior of foreign investors. Keywords: Covid-19, E-GARCH, DCC-GARCH, net foreign inflow, return volatility

IMPACT OF THE RUSSIA-UKRAINE CRISIS ON FOOD INFLATION AND STOCK MARKETS IN ASIAN ECONOMIES: WITH REFERENCE TO INDIA, CHINA, JAPAN AND THAILAND

The current geopolitical risk posed by the Russia-Ukraine war has significant implications on the stock markets and the commodities markets of several countries. Using monthly data from October 2020 to the present time period, we analyse the impact of Russia-Ukraine crisis on food inflation and stock market return volatility in the context of Asian countries, namely, India, China, Japan and Thailand with the help of regression analysis based on the OLS technique. Our main findings show us the impact of the Russia-Ukraine war on the food inflation to be visible in China and Japan whereas the war's effect on the stock markets of all the countries selected is shown to be insignificant. We observe the highest and lowest monthly food inflation in China, the highest monthly stock return volatility in Thailand and the lowest monthly stock return volatility in Japan among the selected countries. For the case of India, the war doesn't have much effect on its food inflation and stock market return volatility. We suggest reducing food import dependency by strengthening domestic production and going for alternative food suppliers so as to not be affected by the international food prices that are subjected to the turmoil of war. It is imperative to re-diversify portfolios based on the volatility trend of stock market returns in order to shield oneself from the perils of stock market volatility caused by wars.

Influence of High Cost of Living, Oil Price, Government Expenditure and Exchange Rate Effect on Stock Market Return Volatility. A Critical Literature Review

Purpose: The financial services sector aims at creating a vibrant and globally competitive financial sector promoting high-levels of savings and financing for investment needs. The overall objective of this study was to examine influence of high cost of living, oil price, government expenditure and exchange rate effect on stock market return volatility. A critical literature review
 Methodology: The paper used a desk study review methodology where relevant empirical literature was reviewed to identify main themes and to extract knowledge gaps.
 Findings: The study also concluded that among the variables under study oil price, inflation, government spending and exchange rate, only exchange rate is significant in explaining the volatility in stock returns in Nairobi securities exchange. Positive shocks are associated with higher volatility than negative shocks. Policy makers should enhance exchange rate stability as well as making sure that inflation is suppressed so as to spur growth in the economy.
 Unique Contribution to Theory, Policy and Practice: The study recommends that the government should also increase production of energy locally so as to reduce over reliance on imported oil, reduce the cost of production as well as suppressing the rate of inflation in the economy. This study recommends that Policy makers, and investors, need to take the macroeconomic variables into account when formulating financial and economic policies which are necessary to encourage investment.

A STUDY ON EFFECTS OF EXCHANGE RATE FLUCTUATION ON STOCK RETURNS; EVIDENCE FROM COLOMBO STOCK EXCHANGE

The objective of this study is to empirically investigate the effects of exchange rate volatility on stock market return volatility from listed companies in Sri Lanka. This study utilizes daily time series data for the All Share Price Index (ASPI) returns of the Colombo Stock Exchange (CSE) and exchange rates over a period of seven years from January 2011 to December 2017. Further, the study utilizes the Generalized Autoregressive Conditional Heteroscedasticity (GARCH) estimation model in order to identify the impact of exchange rate volatility on stock market return. The empirical results of the study reveal that the volatility of Euro, Japan Yen, and US Dollars exchange rates has a positive and significant impact on ASPI return. Overall, the finding of the study highlight that exchange rate volatility is a determinant of stock market return volatility. The findings from this research could provide relevant insights into Sri Lankan listed companies. KEYWORDS: Exchange rate, Stock return, GARCH

Influence of national cultures on the response of the stock market of countries with the first case of COVID-19 infection

This research was conducted during the COVID-19 pandemic which began to become epidemic in several countries in early 2020. This study aims to determine whether the level of individualism and uncertainty avoidance of a country has an effect on Cumulative Abnormal Stock Market Return (CASMR) and Abnormal Stock Market Volatility (AVOLA). The results of this study will show whether the level of individualism and uncertainty avoidance of a country will affect CASMR and AVOLA by using the control variable the level of population density per square kilometer and economic growth with the proxy for growth of Gross Domestic Products (GDP). The results of this study can be useful for stakeholders in issuing regulations to maintain stock market stability by looking at investor behavior that describes market behavior. The sample selection in this study used purposive sampling method. The population in this study is the stock market in each country affected by the COVID-19 pandemic. The sample in this study was 53 stock markets in each country. To test the relationship between variables, this study uses multiple regression analysis. This study uses signalling theory in formulating hypotheses that lead to the results of research analysis.

Analysis of Volatility Spillover in African Stock Markets: Evidence from Nigeria, Ghana, and South Africa

The purpose of this paper was to analyze stock market return volatility spillover between in Sub-Sahara markets using Nigeria, Ghana and South Africa monthly data from January 2000 to December 2017. Preliminary analyses from descriptive statistics show that show mean monthly returns are positive for all the stock markets. Skewness coefficients show that the stock returns and interest rates distribution of all Sub-Sahara Africa stock markets are negatively skewed but inflation rate is positively skewed for Nigeria and South Africa, and flat for Ghana. Excess kurtoses are positive for all the stock markets and macroeconomic indicators, and Jarque-Bera statistics indicate the stock markets’ series and macroeconomic indicators are not normally distributed. The Unit roots tests results indicate that all the stock markets and macroeconomic indicators are first difference stationary. The results of multivariate BEKK-GARCH (1,1) model show evidence of volatility spillover in Sub-Sahara Africa stock markets. We therefore recommend amongst others that stock market authorities should formulate and implement policies that would mitigate any negative effect of stock return volatility on the wealth of retail investors so as to sustain investors’ confidence in the African stock markets. This will eliminate the destabilising impact on the investors’ confidence on the markets.

Asset pricing with return extrapolation

We present a new model of asset prices in which a representative agent has extrapolative beliefs about stock market returns and Epstein-Zin preferences. The model quantitatively explains facts about asset prices, return expectations, and cash-flow expectations. When the agent’s beliefs about stock market returns are calibrated to survey expectations of investors, the model generates excess volatility and predictability of stock market returns, a high equity premium, a low and stable risk-free rate, and a low correlation between stock market returns and consumption growth. Moreover, the model has implications for expectations about future cash flows that are consistent with empirical findings.

Impact of Covid-19 pandemic on stock market returns volatility of Gulf Cooperation Council countries

This study examined the asymmetric impact of the COVID-19 pandemic on the Gulf Cooperation Council (GCC) stock market return volatility. The data included daily closing prices of the GCC stock market from the day of the acknowledgment of the first case of COVID-19 in each country to March 6, 2021. In addition, the study employed generalized autoregressive conditional heteroscedasticity (GARCH) family models. According to the Akaike information criterion, GARCH and exponential GARCH (EGARCH) were the most accurate models. The findings of the GARCH model indicate that the COVID-19 pandemic affected the GCC stock markets. The EGARCH model also confirmed the impact of the COVID-19 pandemic on the GCC stock markets, confirming that the COVID-19 negatively affected GCC stock market returns. The value of the persistence of this volatility continued over a long period. This study has potential implications for investors and policymakers in diversifying investment portfolios and adopting strategies to maintain investor confidence during such crises. Moreover, mechanisms must be developed for reducing risks in financial markets in times of crisis, and central banks should take financial measures to mitigate risks to capital markets. AcknowledgmentsThis achievement was made with the aid of my family’s support, thank you all.

Macroeconomic Uncertainty and Stock Market Uncertainty: Some Further Evidence From Pakistan

The paper provides an updated evidence of the linkage between stock market and macroeconomic factors in Pakistan. The sample period is from January 2011 to November 2017. Macroeconomic variables used are money supply, exchange rate, treasury bill rate, inflation and industrial production. Generalized autoregressive conditional heteroscedasticity (GARCH) models have been used to examine the impact of macroeconomic factors on stock market return and stock market volatility. Findings suggest that macroeconomic factors have an impact on stock market volatility. The fluctuations in inflation and money supply negatively influence the volatility of stock market returns. In contrast, industrial production positively affects the fluctuations of stock market returns. The findings are important for shareholders, investors, regulatory authorities and policymakers.

The Impact of Covid-19 Pandemic on Stock Market Return Volatility: Evidence from Malaysia and Singapore

In this study, the volatility of two Asian stock markets, Bursa Malaysia and Singapore Exchange, is estimated. The analysis used data on daily closing prices of the indices of the respective stock markets between July 1, 2019 and August 31, 2020. The sample is split into two subsample periods: Pre-COVID-19 pandemic and during the COVID-19 pandemic. We estimated a standard GARCH, GARCH-M, TGARCH, EGARCH and PGARCH model for each subsample. We chose the best GARCH that yielded the lowest Schwarz information criterion for the normal, skewed normal, Student’s t-distribution, skewed Student’s t-distribution, generalized error distribution (GED) and skewed GED. The results show that both stock market returns are quite persistent, and the persistence decreases for both stock market returns during the pandemic. Furthermore, the normal distribution performed well for Malaysian and Singaporean stock markets before the pandemic and switched to a Student’s t (skewed normal) during the pandemic. The standard GARCH(1,1), GARCH-M(1,1), and EGARCH(1,1) performed well for both stock market returns, and the EGARCH indicates the presence of the leverage effect when stock market returns are negatively correlated to its volatility.

Dynamic Effects of Macroeconomic Fundamentals on Stock Market Movements: Evidence from BIST100

In this study we examine whether the Efficient Market Hypothesis (EMH) is valued in Turkey (BIST1001) or not and we also examine the ability of essential macroeconomic variables to predict the volatility of Istanbul stock market returns. The relationship is examined through the analysis of the quarterly data concerning the Istanbul stock market index (BIST-100 ) and selected essential macroeconomic indicates in Turkey over the period of 2003Q01 until 2019Q01. In order to investigate the relationship between the variables and BIST-100, Phillips-Ouliaris Cointegration, Asymmetric Cointegration and Dynamic Multipliers in a Nonlinear ARDL (NLARDL) models and also Bayesian Vector Autoregression (Litterman-Minnesota Bayesian VAR) are employed. The findings of the NLARDL test indicates that variables are cointegrated and there is positive and statistically significant asymmetric long run relationship from inflation to Istanbul stock market and also GDP, nominal exchange rate, S&P500 have significant and positive long run effect on Istanbul stock market return. These results suggest that the Istanbul stock market return (BIST-100) has consistent with the Efficient Market Hypothesis (EMH).

How Does News Affect Stock Return Volatility in a Frontier Market?

Many empirical studies have analysed the effect of good news and bad news on equity market return volatility using both developed and emerging markets data, with scant literature for frontier stock markets. This study evaluates how news affects stock market return volatility in a frontier market using Uganda data. It specifically analyses the reaction of stock return volatility to news filtering into a frontier market using the exponential generalized autoregressive conditional heteroscedasticity (GARCH) model on daily data ranging from 1 September 2011 to 31 December 2017. Estimates of the shape parameter from generalized error distribution indicate the existence of leptokurtic return distribution. Results from the exponential GARCH model show that the effect of bad news and good news on the frontier market return volatility differs, thus suggesting existence of leverage effect in the period studied. Overall results from the study suggest that positive news impacts stock market returns volatility more than negative news of the same magnitude. An important implication of our results is that investors, analysts, brokers and dealers should be conscious of the nature of news filtering into the stock market as such information might improve their expected volatility forecast.

Presidential Elections and Stock Market: A Comparative Study

Purpose- This paper is an event study that aims to find empirical evidence on the significance of the impact of presidential election outcome announcements on stock market return volatility in emerging markets versus developed markets; an application on the Egyptian and the US markets. Design/Methodology/ Approach- A mixed methods approach, combining qualitative data to guide sample selection and quantitative analysis to predominately conduct the empirical test was employed. The study used the mean-adjusted return model on secondary data collected for the EGX100 and S&P500 indices, for a single comparable election from each country. Findings- The empirical results show that presidential elections have no significant impact on stock market volatility in both markets, although the data suggests an increase in abnormal returns and a volatility decrease after each relevant election announcements. It is concluded that both markets efficiently absorb the news and reflect it into stock prices, as no statistically significant shifts in volatility can be detected. Originality/ Value- This study is unique as no existing studies addressed the issue of comparing different markets’ behaviour to presidential outcome announcements, and whether markets at different economic development stages may present similar efficiency in reacting to presidential elections. This can provide insight on emerging market behaviour, compared to developed markets, contributing to the comprehension of investors, academics and policymakers.

Impact of Macroeconomic Variables on Stock Return Volatility: Evidence from Sub-Sahara Africa

The main purpose of this paper was to investigate the impact of macroeconomic variables on stock market return volatility in Sub-Sahara markets. The study concentrated on three stock markets including Ghana, Nigeria and South Africa using GARCH-X (1,1) model on monthly data from January 2000 to December 2017. Preliminary analyses from descriptive statistics show that show mean monthly returns are positive for all the stock markets. Skewness coefficients show that the stock returns and interest rates distribution of all Sub-Sahara Africa stock markets are negatively skewed but inflation rate is positively skewed for Nigeria and South Africa, and flat for Ghana. Excess kurtoses are positive for all the stock markets and macroeconomic indicators, and Jarque-Bera statistics indicate the stock markets’ series and macroeconomic indicators are not normally distributed. The Unit roots tests results indicate that all the stock markets and macroeconomic indicators are first difference stationary. The results of the GARCH-X (1,1) model show that macroeconomic variables do not significantly impact stock market returns volatility in Nigeria, Ghana and South Africa at the 5% significance Level. We therefore recommend that stock market regulators, market participants and investors should concentrate more efforts on other macroeconomic variables aside interest rate and inflation rate, in estimating stock market return volatility in Sub-Sahara Africa.