Methodological insights regarding the impact of COVID-19 dataset on stock market performance in African countries: A computational analysis

Year 2024, , 1 - 16, 29.10.2024

Muideen Odunayo Ogunniran , Kamiludeen Rotimi Tijani , Rhoda Ifeanyi Benson , Kabiru Oyeleye Kareem , Lateef Olakunle Moshood , Morufu Oyedunsi Olayiwola

https://doi.org/10.54559/jauist.1493217

Abstract

This research aims to evaluate the impact of the COVID-19 pandemic on stock markets in Africa. The study analyzes the stock market returns in nine selected African countries (South Africa, Morocco, Tunisia, Botswana, Nigeria, Uganda, Kenya, Mauritius, and Tanzania) before, during, and after the COVID-19 pandemic. We investigate the impact of COVID-19 on stock market returns and the effect of the worst-hit country's volatility on other African countries' stock market returns utilizing autoregressive conditional heteroscedasticity (ARCH), generalized ARCH (GARCH), and threshold ARCH (TARCH) tests. Additionally, we explore the implications for foreign investors in terms of portfolio diversification and risk management, contributing to the existing literature on the effects of the COVID-19 crisis on financial markets and investment risk. Thereby, we provide insights into African stock markets' interconnectedness and help foreign investors reduce their losses and manage risks associated with the COVID-19 pandemic. Finally, we discuss the need for further research.

Keywords

Stock market, autoregressive conditional heteroscedasticity (ARCH), generalized ARCH (GARCH), threshold ARCH (TARCH), correlation matrices

References

• T. Paul, B. Isaac, The impact of COVID-19 on stock market performance in Africa: A Bayesian structural time series approach, Journal of Economics and Business 115 (2020) 105968.
• B. N. Ashraf, Stock markets' reaction to COVID-19: cases or fatalities, Research in International Business and Finance 54 (2020) 101249.
• I. A. Raifu, T. T. Kumeka, A. Aminu, The reaction of stock market returns to COVID-19 pandemic and lockdown policy: evidence from Nigerian firm's stock returns, Future Business Journal 7 (1) (2021) 1–16.
• M. J. Alam, G. S. Uddin, M. A. Islam, S. Sarwar, The impact of the COVID-19 pandemic on the stock market in Bangladesh: An event study analysis, Journal of Asian Finance Economics and Business 8 (3) (2021) 1035–1044.
• H. Qing, L. Junyi, W. Sizhu, Y. Jishuang, The impact of COVID-19 on stock markets, Economic and Political Studies 8 (3) (2021) 275–288.
• D. Kayanula, J. Tumwebaze, COVID-19 and African stock markets: a review of early evidence, Journal of Economic Structures 10 (1) (2021) 1–13.
• G. Boako, P. Alagidede, African stock market convergence: regional and global analysis, Applied Economics Letters 18 (2016) 317–321.
• G. Boako, P. Alagidede, Should Africa's emerging markets still be considered a separate asset class?, Applied Economics Letters 24 (1) (2017) 61–66.
• G. Boako, P. Alagidede, African stock market amid global financial crisis: Recoupling or decoupling?, Research in International Business and Finance 46 (2018) 161–180.
• K. S. Andam, H. O. Edeh, P. K. Victor, Thurlow, Estimating the economic costs of COVID-19 in Nigeria, International Food Policy Research Institute (2020) Article ID 63 25 pages.
• S. R. Baker, N. Bloom, S. J. Davis, K. J. Kost, M. C. Sammon, T. Viratyosin, The unprecedented stock market impact of COVID-19. National Bureau of Economic Research (2020) Article ID 26945 24 pages.
• F. Umar, N. Adeel, M. Bilal Muhammad, B. Farhan, The COVID-19 pandemic and stock market performance of transportation and travel services firms: A cross-country study, Economic Research 35 (1) (2022) 6867–6883.
• T. D. Zoungrana, D. L. T. Toé, M. Toé, Covid‐19 outbreak, and stocks return on the West African Economic and Monetary Union's stock market: An empirical analysis of the relationship through the event study approach, International Journal of Finance & Economics (2021) 1–19.
• S. S. Shapiro, M. B. Wilk, An analysis of variance test for normality (complete samples), Biometrika 52 (3-4) (1965) 591–611.
• C. Y. Sin, H. White, Testing competing models for the intraday return volatility in the stock market, Journal of Econometrics 71 (1-2) (1996) 33–55.
• C. Brooks, Introductory econometrics for finance, 3rd Edition, Cambridge University Press, 2014.
• D. B. Nelson, Conditional Heteroskedasticity in Asset Returns: A New Approach, Econometrica 59 (2) (1991) 347–370.
• L. R. Glosten, R. Jagannathan, D. E. Runkle, On the relation between the expected value and the volatility of the nominal excess return on stocks, Journal of Finance 48 (5) (1993) 1779–1801.
• J. M. Zakoian, Threshold heteroskedastic models, Journal of Economic Dynamics and Control 18 (5) (1994) 931–955.
• T. Bollerslev, Generalized autoregressive conditional heteroskedasticity, Journal of Econometrics 31 (3) (1986) 307–327.
• R. F. Engle, Autoregressive conditional heteroscedasticity with estimates of the variance of United Kingdom inflation, Econometrica: Journal of the Econometric Society 50 (4) (1982) 987–1007.
• R. F. Engle, V. K. Ng, Measuring and testing the impact of news on volatility, Journal of Finance 48 (5) (1993) 1749–1778.
• F. Black, Studies of stock price volatility changes, Proceedings of the 1976 Meetings of the Business and Economics Statistics Section, American Statistical Association, (1976) 177–181.
• T. Bollerslev, R. F. Engle, D. B. Nelson, ARCH models, In Handbook of Econometrics, 4 (1994) 2959-3038.
• D. Zhang, M. Hu, Q. Ji, Financial markets under the global pandemic of COVID-19, Finance Research Letters 36 (2020) Article ID 101528 6 pages.
• COVID-19 Tracker, http://www.reuters.com/graphics/world-coronavirus-tracker-and-maps/regions/africa/ (Accessed 20 May 2024).
• C. Gouriéroux, ARCH models and financial applications, Handbook of Financial Econometrics 1 (3) (2012) 1–48.