COVID-19 PANDEMIC AND STOCK MARKET VOLATILITY: EVIDENCE FROM SELECTED AFRICAN COUNTRIES

Abstract

The paper investigates the impact of the COVID-19 pandemic on stock market volatility using evidence from 15 selected African countries. Monthly COVID-19 data for these countries, covering the period from March to November 2020, was sourced from various databases, including the World Bank Development Indicators (WDI) and Worldometer. The study employs the Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model to generate stock returns volatility, which is then regressed against the COVID-19 data using pooled Ordinary Least Squares (OLS) and System-Generalized Method of Moments (GMM) estimation procedures. The empirical findings indicate that the COVID-19 pandemic significantly induced stock market volatility, largely driven by the heightened uncertainty that characterized the period, particularly during the peak growth phase of the pandemic. Both active infection cases and total deaths were shown to increase volatility, reflecting the destabilizing effects of the pandemic on market activities. Additionally, the study found a negative impact of exchange rate depreciation on stock market stability, exacerbating market fluctuations during the crisis. The study recommends the implementation of strong interventionist policies aimed at mitigating the effects of external shocks, such as pandemics, on financial markets. This includes the adoption of stable and competitive exchange rate policies, government interventions, and financial market regulations to enhance market resilience and promote stability in the aftermath of crises like the COVID-19 pandemic