The Covid-19 pandemic has created unprecedented uncertainty in financial markets worldwide, triggering sharp volatility across both emerging and developed economies. This study examines the pandemic’s impact on stock market returns and volatility in Indonesia (an emerging economy) and Hungary (a developed economy) using an event-study approach and the GARCH (1,1) model.
The analysis is based on stock data from the Jakarta Composite Index (JCI) and the Budapest Stock Exchange Index (BUX), sourced from Investing and Bloomberg. The study covers the period from 27 September 2006 to 31 August 2021, capturing two major global shocks: the 2007/08 global financial crisis and the Covid-19 outbreak.
The findings reveal that the Covid-19 pandemic caused more severe negative returns and volatility in both equity markets compared to the global financial crisis. Stock markets in both Indonesia and Hungary became highly volatile, with Covid-19 generating greater turbulence than the 2007/08 crisis. This heightened volatility was largely driven by lockdowns, restrictions on economic activity, and supply–demand shocks.
The study also highlights that developed countries with larger fiscal space were able to respond more effectively with fiscal and monetary policies, stabilizing their economies and maintaining investor confidence. For emerging economies with tighter budgets, the challenge was far greater.
Beyond its market implications, the research underscores the importance of extending our understanding of stock market volatility to help investors manage risk and build sustainable investment strategies during crises. These insights also support the advancement of United Nations Sustainable Development Goal 8 (SDG 8: Decent Work and Economic Growth) by promoting broader access to financial products, including the stock market, in times of uncertainty.
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