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COVID-19, Government Response, and Market Volatility: Evidence from the Asia-Pacific Developed and Developing Markets

Author

Listed:
  • Izani Ibrahim

    (Finance Department, College of Business Administration, Prince Sultan University, Rafha Street, Riyadh 11586, Saudi Arabia)

  • Kamilah Kamaludin

    (Accounting Department, College of Business Administration, Prince Sultan University, Rafha Street, Riyadh 11586, Saudi Arabia)

  • Sheela Sundarasen

    (Accounting Department, College of Business Administration, Prince Sultan University, Rafha Street, Riyadh 11586, Saudi Arabia)

Abstract

This study examines the relationship between COVID-19, government response measures, and stock market volatilities for 11 developed and developing economies within the Asia-Pacific region. Our period of study is between 15 February–30 May 2020. Using the continuous wavelet transformation (CWT) analysis and plots and GJR-GARCH analysis, we examined the effects of the COVID-19 public health crisis and the corresponding government measures on the respective domestic equity markets volatilities. The CWT plots showed a varying level of market volatilities at different investment horizons. All the sample countries, except Japan, experienced very low or low volatility over the short-term horizons. In contrast, Vietnam, Malaysia, and Laos experienced medium volatility over the medium-term horizons. Finally, China, Japan, South Korea, Malaysia, and the Philippines experienced high volatility over the long-term horizons. The GJR-GARCH results further ascertain that market volatilities are affected by domestic events, notably, the COVID-19 government intervention measures. In most sample countries, the government measures significantly reduce market volatility in the domestic equity markets. Additionally, international events have also triggered market volatilities. Overall, our study offers several contributions and implications for practitioners and policymakers.

Suggested Citation

  • Izani Ibrahim & Kamilah Kamaludin & Sheela Sundarasen, 2020. "COVID-19, Government Response, and Market Volatility: Evidence from the Asia-Pacific Developed and Developing Markets," Economies, MDPI, vol. 8(4), pages 1-22, November.
    • Handle: RePEc:gam:jecomi:v:8:y:2020:i:4:p:105-:d:448558
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    2. Alan K. Karaev & Oksana S. Gorlova & Vadim V. Ponkratov & Marina L. Sedova & Nataliya S. Shmigol & Margarita L. Vasyunina, 2022. "A Comparative Analysis of the Choice of Mother Wavelet Functions Affecting the Accuracy of Forecasts of Daily Balances in the Treasury Single Account," Economies, MDPI, vol. 10(9), pages 1-27, September.
    3. Bakry, Walid & Kavalmthara, Peter John & Saverimuttu, Vivienne & Liu, Yiyang & Cyril, Sajan, 2022. "Response of stock market volatility to COVID-19 announcements and stringency measures: A comparison of developed and emerging markets," Finance Research Letters, Elsevier, vol. 46(PA).
    4. Mehmet Sahiner, 2022. "Forecasting volatility in Asian financial markets: evidence from recursive and rolling window methods," SN Business & Economics, Springer, vol. 2(10), pages 1-74, October.
    5. Li, Yanshuang & Shi, Yujie & Shi, Yongdong & Yi, Shangkun & Zhang, Weiping, 2023. "COVID-19 vaccinations and risk spillovers: Evidence from Asia-Pacific stock markets," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    6. Chaiyuth Padungsaksawasdi & Sirimon Treepongkaruna, 2023. "Investor Attention and Global Stock Market Volatility: Evidence from COVID-19," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 22(1), pages 85-104, March.

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