Stock market reactions of Malaysian firms and industries towards events surrounding COVID-19 announcements and number of confirmed cases

Redhwan Aldhamari, Ku Nor Izah Ku Ismail, Haithm Mohammed Hamood Al-Sabri and Mousa Sharaf Adin Hezam Saleh

Pacific Accounting Review, 2022, vol. 35, issue 3, 390-411

Abstract: Purpose - This paper aims to examine the stock market reactions of firms and industries in Malaysia to the government’s COVID-19 movement control order (MCO) announcement. As China is Malaysia’s leading trading partner, the authors also observe if the Chinese Government’s confirmation of human-to-human coronavirus transmission affects firms’ stock market reactions. In addition, this study examines whether the Malaysian Government’s ease of restrictions on economic activities affects firms’ stock market reactions. Finally, this study analyses the effect of COVID-19 number of confirmed cases on firms’ abnormal returns. Design/methodology/approach - This study uses an event study methodology to determine the abnormal returns between day −30 to day 30 of the announcements. In addition, this study uses the regression estimation to determine whether the COVID-19 number of confirmed cases explain the abnormal returns. Findings - This study finds that investors react negatively to the announcement of the MCO and confirmation of the human-to-human transmission of coronavirus over the event windows. However, the cumulative average abnormal returns (CAARs) started to recover when stimulus packages were introduced, and the lockdown measures were eased, allowing businesses to reopen. This study also finds that only firms in the health-care sector reported significant positive CAARs. Stock returns of the utilities and telecommunication firms showed no changes, while eight other sectors fell remarkably. The results also show that the COVID-19 number of confirmed cases adversely affects firms’ abnormal returns. Practical implications - This study suggests that stock prices incorporate bad and good news surrounding the announcements of major international and local events related to the COVID-19 pandemic. Thus, investors should consider such factors in making investment decisions. Originality/value - To the best of the authors’ knowledge, this paper is one of the early research works investigating the stock market reactions to the COVID-19 major announcements (MCO, human-to-human transmission and ease of restrictions on economic activities) using an event study methodology in an emerging market, namely, Malaysia. This study is timely in light of the recently increasing calls for researchers to analyse the potential economic impacts of COVID-19 on global capital markets, especially in emerging markets whose evidence is scarce.

Keywords: Malaysia; Event study; COVID-19; Cumulative average abnormal returns; Industry stock performance; G11; G14 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eme:parpps:par-08-2020-0125

DOI: 10.1108/PAR-08-2020-0125

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