Impact of crisis events on stock market volatility and risks

Yilin Zhu, Shairil Izwan Taasim, Adrian Daud, Junjie Cai

Article ID: 9770
Vol 8, Issue 14, 2024

VIEWS - 30 (Abstract) 24 (PDF)

Abstract


The COVID-19 crisis, which occurred in 2020, brought crisis events back to the attention of scholars. With the increasing frequency of crisis events, the influence of crisis events on stock markets has become more obvious. This paper focuses on the impact of the subprime crisis, the Chinese stock market crash crisis and the COVID-19 crisis on the volatility and risk of the world’s major stock markets. In this paper, we first fit the volatility using EGARCH model and detect asymmetry of volatility. After that, a VaR model is calculated on the basis of EGARCH to measure the impact of the crisis event on the risk of stock markets. This paper finds that the subprime crisis has a significant influence on the risk of the stock market in China, US, South Korea, and Japan. During the COVID-19 crisis, there was little change in the average risk of each country. But at the beginning of the COVID-19 crisis, there was a significant increase in the risk of each country’s stock market. The Chinese stock market crash crisis had a more pronounced effect on the Chinese and Japanese stock markets and a lesser effect on the US and Korean stock markets.


Keywords


crisis event; risk; GARCH model

Full Text:

PDF


References


Ahmed, A. E. M., & Suliman, S. Z. (2011). Modeling stock market volatility using GARCH models evidence from Sudan. International journal of business and social science, 2(23).

Altig, D., Baker, S., Barrero, J. M., Bloom, N., Bunn, P., Chen, S., ... & Thwaites, G. (2020). Economic uncertainty before and during the COVID-19 pandemic. Journal of public economics, 191, 104274.

Bordo, M. D., & Meissner, C. M. (2016). Fiscal and financial crises. In Handbook of macroeconomics (Vol. 2, pp. 355-412). Elsevier.

Borges, M. R. (2010). Efficient market hypothesis in European stock markets. The European Journal of Finance, 16(7), 711-726.

Bressan, S., & Weissensteiner, A. (2024). On the time‐varying relationship between coskewness and returns of banks. Review of Financial Economics, 42(1), 21-38.

Chen, D. H., Chen, C. D., & Wu, S. C. (2014). VaR and the cross-section of expected stock returns: An emerging market evidence. Journal of Business Economics and Management, 15(3), 441-459.

Chen, M. H. (2010). The economy, tourism growth and corporate performance in the Taiwanese hotel industry. Tourism Management, 31(5), 665-675.

Chong, C. W., Ahmad, M. I., & Abdullah, M. Y. (1999). Performance of GARCH models in forecasting stock market volatility. Journal of forecasting, 18(5), 333-343.

Chuang, W. I., Liu, H. H., & Susmel, R. (2012). The bivariate GARCH approach to investigating the relation between stock returns, trading volume, and return volatility. Global Finance Journal, 23(1), 1-15.

Cui, Y., Li, L., & Tang, Z. (2021). Risk Analysis of China Stock Market During Economic Downturns–Based on GARCH-VaR and Wavelet Transformation Approaches. Asian Economic and Financial Review, 11(4), 322.

Dana, A. N. (2016). Modelling and estimation of volatility using ARCH/GARCH models in Jordan’s stock market. Asian Journal of Finance & Accounting, 8(1), 152-167.

Degiannakis, S., Floros, C., & Livada, A. (2012). Evaluating value‐at‐risk models before and after the financial crisis of 2008: International evidence. Managerial Finance, 38(4), 436-452.

Ding, D., Guan, C., Chan, C. M., & Liu, W. (2020). Building stock market resilience through digital transformation: using Google trends to analyze the impact of COVID-19 pandemic. Frontiers of Business Research in China, 14(1), 21.

Endri, E., Abidin, Z., Simanjuntak, T. P., & Nurhayati, I. (2020). Indonesian stock market volatility: GARCH model. Montenegrin Journal of Economics, 16(2), 7-17.

Grout, P. A., & Zalewska, A. (2016). Stock market risk in the financial crisis. International Review of Financial Analysis, 46, 326-345.

Gunnigle, P., Lavelle, J., & Monaghan, S. (2013). Weathering the storm? Multinational companies and human resource management through the global financial crisis. International Journal of Manpower, 34(3), 214-231.

Kestens, K., Van Cauwenberge, P., & Bauwhede, H. V. (2012). Trade credit and company performance during the 2008 financial crisis. Accounting & Finance, 52(4), 1125-1151.

Li, Y., Wang, S., & Zhao, Q. (2021). When does the stock market recover from a crisis? Finance Research Letters, 39, 101642.

Lim, C. M., & Sek, S. K. (2013). Comparing the performances of GARCH-type models in capturing the stock market volatility in Malaysia. Procedia Economics and Finance, 5, 478-487.

Lin, Z. (2018). Modelling and forecasting the stock market volatility of SSE Composite Index using GARCH models. Future Generation Computer Systems, 79, 960-972.

Maital, S., & Barzani, E. (2020). The global economic impact of COVID-19: A summary of research. Samuel Neaman Institute for National Policy Research, 2020(2020), 1-12.

Masoud, N. M. (2013). The impact of stock market performance upon economic growth. International Journal of Economics and Financial Issues, 3(4), 788-798.

Mathur, S., Chotia, V., & Rao, N. V. M. (2016). Modelling the impact of Global Financial Crisis on the Indian stock market through GARCH models. Asia-Pacific Journal of Management Research and Innovation, 12(1), 11-22.

Mazur, M., Dang, M., & Vega, M. (2021). COVID-19 and the march 2020 stock market crash. Evidence from S&P1500. Finance research letters, 38, 101690.

Miletic, M., & Miletic, S. (2015). Performance of Value at Risk models in the midst of the global financial crisis in selected CEE emerging capital markets. Economic research-Ekonomska istraživanja, 28(1), 132-166.

Nguyen, Q. T. T., Anh, D. L. T., & Gan, C. (2021). Epidemics and Chinese firms’ stock returns: is COVID-19 different? China Finance Review International, 11(3), 302-321.

Ozili, P. (2020). COVID-19 in Africa: socio-economic impact, policy response and opportunities. International Journal of Sociology and Social Policy, 42(3/4), 177-200.

Rahman, M. L., Amin, A., & Al Mamun, M. A. (2021). The COVID-19 outbreak and stock market reactions: Evidence from Australia. Finance Research Letters, 38, 101832.

Rehman, M. Z. (2023). Black swan events and stock market behavior in Gulf countries: a comparative analysis of financial crisis (2008) and COVID-19 pandemic. Arab Gulf Journal of Scientific Research.

Rossi, M., & Gunardi, A. (2018). Efficient market hypothesis and stock market anomalies: Empirical evidence in four European countries. Journal of Applied Business Research, 34(1).

Sengupta, I. (2020). An Exhaustive Study of the’BLACK SWAN’Events in the Financial Markets. Adhyayan: A Journal of Management Sciences, 10(02), 22-35.

Setiawan, B., Ben Abdallah, M., Fekete-Farkas, M., Nathan, R. J., & Zeman, Z. (2021). GARCH (1, 1) models and analysis of stock market turmoil during COVID-19 outbreak in an emerging and developed economy. Journal of Risk and Financial Management, 14(12), 576.

Silva, T. C., Muniz, F. J., & Tabak, B. M. (2022). Indirect and direct effects of the subprime crisis on the real sector: labor market migration. Empirical Economics, 62(3), 1407-1438.

Stracca, L. (2015). Our currency, your problem? The global effects of the euro debt crisis. European Economic Review, 74, 1-13.

Su, C., Liu, Y., Liu, C., & Tao, R. (2022). The Impact of Medical and Health Fiscal Expenditures on Pharmaceutical Industry Stock Index in China. International Journal of Environmental Research and Public Health, 19(18), 11730.

Wang, Y. C., Tsai, J. J., & Li, X. (2019). What drives China’s 2015 stock market surges and turmoil? Asia‐Pacific Journal of Financial Studies, 48(3), 410-436.

Xu, W., Wu, J., & Cao, L. (2020). COVID-19 pandemic in China: Context, experience and lessons. Health policy and technology, 9(4), 639-648.

Zakoian, J. M. (1994). Threshold heteroskedastic models. Journal of Economic Dynamics and control, 18(5), 931-955.

Zhu, Y., Taasim, S. I., Daud, A., & Cai, J. (2024). Government policies and their impact on the China securities index 300 stock market: Insights from the COVID-19 crisis. Journal of Infrastructure, Policy and Development, 8(10), 7737.

Zouaoui, M., Nouyrigat, G., & Beer, F. (2011). How does investor sentiment affect stock market crises? Evidence from panel data. Financial review, 46(4), 723-747.




DOI: https://doi.org/10.24294/jipd9770

Refbacks

  • There are currently no refbacks.


Copyright (c) 2024 Yilin Zhu, Shairil Izwan Taasim, Adrian Daud, Junjie Cai

License URL: https://creativecommons.org/licenses/by/4.0/

This site is licensed under a Creative Commons Attribution 4.0 International License.