Modelling Stock Market Volatility During the COVID-19 Pandemic: Evidence from BRICS Countries

Abstract

The objective of the research paper is to identify the stock market volatility pattern of BRICS countries during the outbreak of the COVID-19 pandemic. The study is based on the time series data, which consists of the daily closing price of the BRICS countries' index for a two-year (pandemic) period from 1st January 2020 to 31st December 2021. Both the symmetric and asymmetric models of Generalized Autoregressive Conditional Heteroscedasticity (GARCH) have been employed in the study to investigate whether volatility changes over the pandemic period. The result of the GARCH-M (1,1) model evidenced the presence of a positive and insignificant risk premium. Based on the empirical work carried out using the market index of BRICS countries, it was found from EGARCH (1,1), and TGARCH (1,1) models that there exists a leverage effect in the countries, viz. Brazil, Russia, India, China and South Africa. Since the stock price during the pandemic period triggered the entire financial market, the investors, fund managers and portfolio managers should be more aware of the uncertainty and need to adjust their investments accordingly.