Do the stocks' returns and volatility matter under the COVID-19 pandemic? A Case Study of Pakistan Stock Exchange

Muhammad Saeed (), Ijaz Ahmad () and Muhammad Ahmad Usman ()
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Muhammad Saeed: PhD Scholar, School of Economics and Finance, Xi’an Jiaotong University, China
Ijaz Ahmad: PhD Scholar, School of Economics and Finance, Xi’an Jiaotong University, China
Muhammad Ahmad Usman: PhD Scholar, School of Economics and Finance, Xi’an Jiaotong University, China

iRASD Journal of Economics, 2021, vol. 3, issue 1, 13-26

Abstract: The catastrophe that the world is now facing in the form of COVID-19, has affected most of the world economies and financial markets as a result of lockdown, travelling restrictions, and social distances. The present study attempted to investigate the effects of COVID-19 on the stock returns of the Pakistan Stock Exchange. The data employed comprises daily prices of Pakistan Stock Exchange, the daily value of exchange rate over the period 01 January 2011 to 30 April 2021, and a dummy variable for COVID-19 which takes 1 for the period during COVID-19 and 0 for the period before. The data were sourced from the Karachi Stock Exchange website, National Institute of Health Sciences Pakistan, and State Bank of Pakistan. We applied the autoregressive conditional heteroskedastic (ARCH) and the associate generalized autoregressive conditionally heteroskedastic (GARCH) approaches to analyze the impact. Our findings revealed that a negative relationship exists between our variables of interest with mean returns and a positive relationship with the volatility of the KSE-100 index. This implies that the COVID-19 pandemic has affected the stock price and increases the volatility of the KSE-100 index, and further affects the financial system. The study recommends that an urgent and powerful response is needed on the part of the government,including strong measures to prevent a severe stock market crash in Pakistan in near future.

Keywords: Stocks Market; COVID-19; Exchange Rate; GARCH; Volatility (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:ani:irdjoe:v:3:y:2021:i:1:p:13-26

DOI: 10.52131/joe.2021.0301.0022

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