Norshafiqah Khrudin@Khairudin1 and Nurul Sima Mohamad Shariff2*

1,2*Faculty of Science and Technology, Universiti Sains Islam Malaysia, 71800, Nilai, Negeri Sembilan, Malaysia

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At the end of 2019, a serious disease that has existed in Wuhan, China, and has been identified as Coronavirus disease (COVID-19), and it has become a pandemic as it has spread furiously all over the world. To prevent the spread of the disease, all countries declared lockdown, and all activities in the country were required to halt immediately, resulting in economic turmoil. The stock market has become volatile and has been exhibiting a downtrend as returns have decreased. However, there is little attention given to investigating the stock market volatility in Malaysia, whereas volatility occurs in the market since the behaviour of the stock market moves up and down often during COVID-19. The objective of this study is to investigate the effect of COVID-19 on the volatility of the Kuala Lumpur Composite Index (KLCI) and 13 sectoral indices; KL Construction (KLCT), KL Consumer Products (KLCM), KL Energy (KLEN), KL Finance (KLFI), KL Healthcare (KLHC), KL Industrial Products (KLIP), KL Plantation (KLPL), KL Property (KLPR), KL REIT (KLRE), KL Technology (KLTE), KL Telecommunications and Media (KLTC), KL Transportation and Logistics (KLTP) and KL Utilities (KLUT) as well as to find out which sectors are affected by this outbreak compared to the KLCI. The duration of the data taken is from 1 October 2018, until 30 September 2021. The method that is used to analyze the volatility is the Generalized AutoRegressive Conditional Heteroskedasticity (GARCH) model. The results show that there is a significant effect of COVID-19 on the return of the stock market. Most of the results are similar for the sectoral indices in the presence of the AutoRegressive Conditional Heteroskedasticity (ARCH) effect. This study concludes that COVID-19 has had a significant negative impact on the KLCI and sectoral indices, whether in a positive or negative manner.

Keywords: GARCH Model, KLCI, Sectoral Indices, Stock Market, Volatility


Published On: 10 April 2023


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