Proceedings of the First International Conference of Economics, Business & Entrepreneurship, ICEBE 2020, 1st October 2020, Tangerang, Indonesia

Research Article

GARCH Effect and Abnormal Returns during COVID-19 Pandemic

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  • @INPROCEEDINGS{10.4108/eai.1-10-2020.2305564,
        author={Elok  Heniwati},
        title={GARCH Effect and Abnormal Returns during COVID-19 Pandemic},
        proceedings={Proceedings of the First International Conference of Economics, Business \& Entrepreneurship, ICEBE 2020, 1st October 2020, Tangerang, Indonesia},
        publisher={EAI},
        proceedings_a={ICEBE},
        year={2021},
        month={4},
        keywords={covid-19 indonesia capital market garch volatility},
        doi={10.4108/eai.1-10-2020.2305564}
    }
    
  • Elok Heniwati
    Year: 2021
    GARCH Effect and Abnormal Returns during COVID-19 Pandemic
    ICEBE
    EAI
    DOI: 10.4108/eai.1-10-2020.2305564
Elok Heniwati1,*
  • 1: Universitas Tanjungpura
*Contact email: elok.heniwati@ekonomi.untan.ac.id

Abstract

Considering that in general stock returns display time-varying volatility, researchers focus on how abnormal returns are calculated because it impacts on how it will be interpreted. This study uses a market model for the GARCH effect to obtain a more efficient estimation result. Using the sample of bank stocks, we empirically investigate how this adjustment impacts the magnitude of the abnormal return associated with the COVID-19 event. The results show that the calculation of abnormal returns taking into account the GARCH effect results in a more widespread than OLS. It suggests that the traditional market model should be sharpened for conditional heteroscedasticity when calculating abnormal returns during the COVID-19 outbreaks.