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The Impact of Covid-19 on Emerging Stock Market Volatility: Empirical Evidence from Borsa Istanbul

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  • İbrahim Yağlı

Abstract

The study aims to examine the impact of COVID-19 on the Turkish stock market volatility and reveal how different industries are affected by COVID-19. Volatility between pre-COVID and COVID periods are compared across industries to understand the impact of the first shock. Markov-switching dynamic regression (MSDR) model is employed to determine the transition from low volatility (pre-COVID) period to high volatility (COVID) period. The findings reveal a significant deterioration in volatility for all industries during the COVID-period, with a more dominant impact on the service sector. Then, factors that drive stock market volatility are investigated to understand the role of COVID-19 on increasing volatility. Results show that COVID-19 patients trigger volatility for all industries except food & beverages, insurance, non-metal mineral product, and wholesale & retail trade. On the other hand, an increase in the number of recoveries results in lower volatility for most of the industries. Besides, credit default swap increases volatility while the exchange rate lowers volatility. However, the magnitudes of credit default swap and exchange rate are greater than those of patients and recoveries, suggesting that COVID-19 is not the main driver of volatility for the Turkish stock market in the pandemic period.

Suggested Citation

  • İbrahim Yağlı, 2020. "The Impact of Covid-19 on Emerging Stock Market Volatility: Empirical Evidence from Borsa Istanbul," Journal of Research in Economics, Politics & Finance, Ersan ERSOY, vol. 5(SI), pages 269-279.
    • Handle: RePEc:ahs:journl:v:5:y:2020:i:si:p:269-279
    DOI: 10.30784/epfad.826736
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    COVID-19; Industry-Level Volatility; Emerging Market Economy;
    All these keywords.

    JEL classification:

    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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