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The Impact of COVID-19 on the Volatility of Bangladeshi Stock Market: Evidence

from GJR-GARCH Model

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DOI: 10.13106/jafeb.2022.vol9.no4.0029

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 Uttam GOLDER, Nishat RUMALY, A. H. M. SHAHRIAR, Mohammad Jahangir ALAM, Al Amin BISWAS, Mohammad Nazrul ISLAM /
Journal of Asian Finance, Economics and Business Vol 9 No 4 (2022) 0029–0038 29

Print ISSN: 2288-4637 / Online ISSN 2288-4645

doi:10.13106/jafeb.2022.vol9.no4.0029

The Impact of COVID-19 on the Volatility of Bangladeshi

Stock Market: Evidence from GJR-GARCH Model

Uttam GOLDER1, Nishat RUMALY2, A. H. M. SHAHRIAR3, Mohammad Jahangir ALAM4,

Al Amin BISWAS5, Mohammad Nazrul ISLAM6

Received: December 15, 2021  Revised: February 27, 2022  Accepted: March 07, 2022

Abstract
The enormous sway of COVID-19 on the international financial market has been felt across the globe. The financial markets of Bangladesh
have also been similarly affected by the global epidemic and experienced a significant increase in volatility. To scrutinise the connection
between COVID-19 and the Dhaka Stock Exchange (DSE) indices’ return and instability, this study uses data of the DSE from February 2014
to September 2021. A comparative examination of the return and instability of the stock indices of the DSE has also been done considering the
outbreak of the current COVID-19 situation. After using the GJR-GARCH (1,1) model, this review uncovers that the outbreak of COVID-19
has a statistically positive noteworthy association with the DSE stock indices’ instability, which increases the market’s volatility. Traders’ fear
and the rising frequency of COVID-19 reported patients could cause this. Besides, according to this study, COVID-19 shows a substantial
positive linkage with stock market returns that increases the market’s return. An appealing valuation, lower interest rates in the banking channel,
economic rebound following the closure to prevent coronavirus transmission, improved remittance inflows, and a return of export revenues
could all have contributed to this outcome. In addition, the findings also reveal that all market indices are in a mean-reverting phase.

Keywords: COVID-19, Dhaka Stock Exchange (DSE), Volatility, GJR-GARCH, Bangladesh

JEL Classification Code: C22, G11, G12

1. Introduction
First Author. Department of Finance and Banking, Jashore University
1

of Science and Technology, Bangladesh. ORCID ID: https://orcid.

org/0000-0003-1302-838X. The infectious COVID-19 virus was first found
Email: uttamgolder@gmail.com; golder_fnb@just.edu.bd in Wuhan, China, in 2019, and from here it spread all
Department of Finance and Banking, Jashore University of Science
2
across the globe. The unexpected spread of the SARS-
and Technology, Bangladesh. ORCID ID: https://orcid.org/0000- COV has endangered the entire world. It has created an
0002-2408-9711. Email: nishat.du17@gmail.com
Department of Finance and Banking, Jashore University of Science
3 enormous problem for public health and the economy
and Technology, Bangladesh. ORCID ID: https://orcid.org/0000- (Bora & Basistha, 2021; Khan et al., 2020; Wang & Han,
0003-1257-6501. Email: shahriarbanking@gmail.com 2021). The hazard faced by the general public due to this
Corresponding Author. Department of Accounting and Information
4

Systems, Jashore University of Science and Technology,

Bangladesh. ORCID ID: https://orcid.org/0000-0002-9137-079X.
[Postal Address: No. 7408, District: Jashore, Bangladesh]
Email: jahangir.sr@gmail.com; jahangir.sr_ais@just.edu.bd
Department of Finance and Banking, Jashore University of Science
5
pandemic has been devastating because of lockdowns
placed in many countries. It has led to an unparalleled
pitfall for people stretching beyond health (Naseem et al.,
2021). People started to think differently regarding their

and Technology, Bangladesh. ORCID ID: https://orcid.org/0000- occupation and working methods (Kramer & Kramer,
0002-0234-7652. Email: mail.alaminbiswas@gmail.com 2020). Teresiene et al. (2021) alluded to this pandemic
Department of Finance and Banking, Jashore University of Science
6
as different from other financial crises that occurred
and Technology, Bangladesh. ORCID ID: https://orcid.org/0000-
0002-9591-1442. Email: nazrul1361@gmail.com
worldwide. To defend public health, many countries took
various policies, but some of those created unemployment
© Copyright: The Author(s)
This is an Open Access article distributed under the terms of the Creative Commons Attribution problems because all people do not have the opportunity
Non-Commercial License (https://creativecommons.org/licenses/by-nc/4.0/) which permits to earn a living from their homes (Jiang et al., 2020). The
unrestricted non-commercial use, distribution, and reproduction in any medium, provided the
original work is properly cited. footprints of this pandemic have affected every nook of
 Uttam GOLDER, Nishat RUMALY, A. H. M. SHAHRIAR, Mohammad Jahangir ALAM, Al Amin BISWAS, Mohammad Nazrul ISLAM /
30 Journal of Asian Finance, Economics and Business Vol 9 No 4 (2022) 0029–0038
economy, business decision, and investment programs
across the world. The sickly financial activities have
made many countries’ stock markets volatile and bearish
in this pandemic (Alzyadat & Asfoura, 2021; Chaudhary
et al., 2020). Volatility, a statistical measure of financial
risk, helps identify the dispersion of portfolios returns or
market indices. Knowing about the level of vulnerability
that occurred due to any pandemic situation is crucial for
investors to optimise wealth.
Most of the largest GDP holding courtiers like Spain,
Italy, and the UK suffered extremely due to their depen-
dence on productivity and the labour market (Fana et al.,
2020). Well-developed countries became puzzled to
handle the catastrophe that arrived due to COVID-19,
where Bangladesh, as a poverty-stricken country, went
through a teribble time (Al-Zaman, 2020). Being an
overpopulated and poverty-stricken country, Bangladesh
faces tremendous hazards because of unpreparedness
to manage this pandemic (Kabir et al., 2021). Analysts
have notified that volatility in the equity market is
connected to anxiety because it is the major indicator
to make investment decisions (Kayser & Golder, 2019).
The higher variation in share indices notifies greater
changes in stock price, leading to an uncertain market
(Chaudhary et al., 2020). Some important reasons for
making the share market unpredictable and vague include
travel restrictions, maintenance of lockdown, shut down
of various industries and manufacturing companies, lower
focus on this market development, etc. The worst affected
sectors were manufacturing factories, tourism, local retail
shops, and the investment market (Dube et al., 2021;
Pjanić, 2019).
World Health Organization acknowledged the corona-
virus as a universal epidemic on March 11, 2020. Even
much before this announcement was made, the stock
indices of different countries started to fall greatly; for
example, Dow Jones Industrial Average (DJIA) Index
Figure 1: Daily Percentage Change of DSEX, DSES, and DS30 (February 2014 – September 2021)
reduced 26% within four trading days of the declaration
of COVID-19 as an epidemic (Mazur et al., 2021).
Moreover, ASX-200 plunged 1.9%, Asia Dow Index fell 4%,
and Nikkei-225 of Japan lost by 3.6% (Mishra & Mishra,
2020). However, despite the Coronavirus pandemic, very
interestingly, the stock market of Bangladesh started
to step up after seven to eight years. DSEX, the broad
index of DSE, became the best performing index from
July to September of 2020, according to the research
study conducted by Asia Frontier Capital (Hugger, 2021).
However, at this time, some major decisions were taken
by Bangladesh Securities and Exchange Commission
(BSEC). In 2020, the controlling authority of BSEC was
reformed, and the head of the commission, along with
other parties, reformed the share market to a large extent
by changing different ongoing rules and implementing
those through reformative steps (Zahid, 2021). According
to this premise, it was expected that people will get back
their motivation to invest in the share market (Habib,
2021). The regenerative policies and diligence revealed
numerous positive changes in the share market. Besides,
limited opportunities for individual investors in other
sectors and lower depository interest from banks and other
financial institutions also encouraged people to invest in
the equity market (Mavis, 2021).
Some positive motivations lead this study to go
forward. In Bangladesh, the number of studies on the
volatility modelling during COVID-19 on the equity
market is exiguous. This work explores the volatility
level of the share market in Bangladesh at the stage in the
COVID-19. Likewise, it covers all of the stock indices
of DSE to have a clear thought regarding the waves of
this fatal virus on the overall stock market. This study
reveals how historical and current stock prices have
made the capital market volatile throughout COVID-19.
It also scrutinises the presence and nature of asymmetric
information or leverage effect on this market.
 Uttam GOLDER, Nishat RUMALY, A. H. M. SHAHRIAR, Mohammad Jahangir ALAM, Al Amin BISWAS, Mohammad Nazrul ISLAM /
Journal of Asian Finance, Economics and Business Vol 9 No 4 (2022) 0029–0038
Moreover, it provides a clear idea about the three DSE
indices’ mean-reverting capacity. Besides, throughout this
study, a comparative overview is achieved through which
it is possible to know how significantly COVID-19 makes
a particular index volatile. Finally, it discloses whether the
present and past days related to COVID-19 impacts the
index through a positive or negative shock.
To the authors’ best acquaintance, it is the first-ever
comprehensive investigation regarding the consequences
of COVID-19 on the instability of the stock exchange in
Bangladesh. Another notable gap is that most previous
studies were based on a theoretical perspective. No other
studies have been conducted earlier for volatility measure-
ment of the stock market to realise the cruel claw of
Coronavirus disease in Bangladesh.
2.  Literature Review
In business, finance, and investment, the capacity to
forecast and pretend volatility is a significant virtue. Staying
in an integrated world, various sectors have to struggle
with lots of externalities and spillover effects from time
to time. The coronavirus pandemic has affected various
business activities, including roadside restaurants, tea stalls,
shopping centres, physical bookstores etc. (Nguyen et al.,
2020; Pjanić, 2019). Stakeholders of share markets are very
worried about the volatility of this market in this current
pandemic of COVID-19 because it is unlike any prior
financial catastrophes (Fernandes, 2020). Barua and Barua
(2020) reported that the COVID-19 pandemic generates
many-sided catastrophes for the banking sector through
widening default ratios, mostly in developing economies
(Rizwan et al., 2020). Authors worldwide are working on
this ongoing issue because people may face unforeseen
problems in the future, which may cause market volatility,
and proper research may find a solution to eliminate the
unavoidable externalities. Knowing about the volatility in
markets is crucial, but it is quite tough to observe because
volatility is both capricious and sensitive at the same time
(Awalludin et al., 2018).
Many researchers and econometricians have generated
different volatility models to realise the level of variation in
the stock market. Every investor and related party requires
a clear idea regarding the volatility in stock markets to
grab benefits. Yong et al. (2021) revealed the significance
of volatility in the pricing of assets, supervision of risk,
choosing and allocation of the portfolio, and mentioned
the importance of the GARCH model in determining these
kinds of volatility. Chaudhary et al. (2020) analysed indices
of the share market of 10 renowned countries grounded
on GDP to know the consequences of coronavirus on
the share market. The research paper revealed that in the
COVID phase from January 2020 to June 2020, there
31
was an adverse effect on all market indices taken for the
study. Although in the second quarter of the pandemic, all
market indices represented signs of slight recovery with
different strengths, the level of volatility remained higher.
In recent times, a study was undertaken by Yong et al.
(2021), who also mentioned COVID-19 as a concerning
matter for business analysts and econometricians. The
central point for this anxiety was the volatility in portfolio
selection, return from preferred investments and pricing
of assets.
To control the sudden terrible effect of the pandemic,
many countries resorted to strict lockdowns due to
coronavirus, a contagious disease. A countrywide lockdown
policy is intended to control the spread of this highly
infectious disease (Ashraf, 2020; Utomo & Hanggraeni,
2021). Although the decision reduces the impact of the
disease to a limited extent, the decision created a direct
impact on the economy, and several authors supported his
concept (Chaudhary et al., 2020; Mishra & Mishra, 2020;
Ozili & Arun, 2020). Governments of different countries
uphold various regulations that ultimately affect the stock
market to a certain extent (Topcu & Gulal, 2020). Deb
(2021) scrutinised the share price movements of three
airlines companies and tried to forecast the price volatility
of the share market using a modified GARCH model. The
outcome showed that the pandemic had an exotic impact
on stock prices. Mishra and Mishra (2020) disclosed
COVID-19 as a universal contagion and declared that the
unwanted demand and supply-side occurrences forced the
economics to slow down their outlooks for the future. This
study also revealed that the pandemic brought about anxiety
in markets by reducing investors’ strengths and inducing
market volatility. The market’s volatility varied in its impact
depending on the severity of the catastrophe. Albulescu
(2021) evaluated both the global affected rate of coronavirus
and the rate in the USA and used the Standard and Poor
500 index to measure volatility. The review disclosed that
COVID-19 is an alarming source of volatility in financial
activities, making risk management activities vulnerable.
Bora and Basistha (2021) compared India’s stock market
in the earlier COVID-19 and after the COVID period.
Utilising the GARCH model, this work revealed that the
Coronavirus pandemic negatively impacted the Indian
stock market, where volatility was high, and the return on
indices was lower at the first lockdown in India. In this vein,
Ozili and Arun (2020) conducted a study on the economy
of four renowned continents revealed that 30 days of social
distancing affected the condition of the stock exchange.
Duttilo et al. (2021) examined the indices of two euro-
zone countries by focusing on time-varying risk premium
and the effect of leverage. This review paper revealed
that the mid-large financial centres of euro areas suffered
more during the first wave of Coronavirus disease.
 Uttam GOLDER, Nishat RUMALY, A. H. M. SHAHRIAR, Mohammad Jahangir ALAM, Al Amin BISWAS, Mohammad Nazrul ISLAM /
32 Journal of Asian Finance, Economics and Business Vol 9 No 4 (2022) 0029–0038
The second wave affected the stock market of Belgium
significantly. The relationship between Coronavirus
disease and uncertainty between stock return and price
instability in the USA in 1st January 2019 and 30th June,
2020 was scrutinised by Hong et al. (2021), and this
study disclosed that this pandemic generated inefficiency
in market inducing income and wealth imparity among
participants where there were lots of liquid money on
hands but a shortage of available funds. Using an event
study and employing panel regression, Sun et al. (2021)
appraised China’s stock market and detected that stocks
having distinct features from different industries were
affected differently. People’s distinct behaviours and
sentiments also affected the share markets, where affluent
investors were more ready to take risks (Chiah & Zhong,
2020). Production, technological, and pharmaceutical
sectors faced low volatility, but transportation, industry,
and mining sectors were less resilient to contagious disease
(He et al., 2020).
The empirical investigation by Bora and Basistha
(2021) uncovered that the profit before the epidemic
on the indices named BSE and NSE of India was more
remarkable than the post COVID era. The stock exchange
faced instability at the time of the spread of the virus. Every
sector, including the share market and financial system
in India, was affected due to this pandemic. The authors
mentioned that some extraordinary policies and programs
of liquidity injection were foremost necessities in that time
to step down the breakneck clutch of coronavirus. Dube
et al. (2021) also analysed the impact of the coronavirus
disease. They suggested fruitful ways to overcome the
situation and proposed numerous recovery pathways to
lessen the undesirable influences of this pandemic.
Share market is a vast area where sudden events and
usual religious occasions or festivals are influenced.
Recently, public news or affairs have greatly affected the
trade decision in the stock market (Cepoi, 2020). Financial
and business literature reveals that the impact of the calendar,
behavioural effect, and festival occasions also predict
stock markets. In this premise, Hassan and Kayser (2019)
scrutinised the share market to know the impact of the most
important religious festival Ramadan and disclosed that the
festival harmed the DSE trade volume because of decreased
banking hours and religious thoughts of the investors. Haque
and Chowdhury (2020) examined DSE and CSE to compare
the effect of coronavirus by investigating available market
data before and after the pandemic. The research work also
scrutinised the aftermath of the policy interventions to the
market. The authors revealed that Bangladesh is the only
country that kept the stock market closed for about 66 days.
However, regulatory bodies took numerous steps, including
reshuffling the governing committee of the share market
and introducing floor prices.
3.  Data and Methodology
The analysis was carried out with daily pricing data
obtained from the Dhaka Stock Exchange (DSE) website
(DSE, 2021), which included the Dhaka Stock Exchange
Broad index (DSEX), Sharia index (DSES), and Blue-chip
index (DS30). The investigation was conducted between
February 2014 to September 2021. The sampling of this time
frame included both the pre-COVID era (February 2014
to February 2020) and the post-COVID era (March 2020
to September 2021). Institute of Epidemiology, Disease
Control, and Research (IEDCR), a government institution
of Bangladesh, has provided the data for the Covid-19
positive persons. The IEDCR confirmed the first COVID-19
patient on 8th March 2020; the trading day before 8th March
was classified as pre-COVID period; the COVID-19 period
was confirmed after 8th March. Following the natural log
difference technique (Chaudhary et al., 2020; Duttilo et al.,
2021), all market indices’ returns were estimated employing
the formula below.
 P 
Rk ,t  ln  k ,t  (1)
P 
 k ,t 1 
Where, everyday return on index k at period t is Rk,t.
The day-to-day ending value of index k at period t is Pk,t,
and Pk,t−1 is the everyday concluding value of index k at
period t−1. If a movement in period does not alter the mean,
variance, and autocorrelation structure, the time series is
stationary (Golder et al., 2020). This study progresses in the
subsequent phases. In the first step, the unit root testing is
employed to assess if a data set is stationary. Academicians
use relevant approaches for verifying the stationarity of time
series data to authenticate the regression results. Here, data
stationarity is verified using two universally known unit root
screen techniques: the Augmented Dickey-Fuller (Dickey
& Fuller, 1981) and Phillips-Perron (Phillips & Perron,
1988) unit root checks, and the findings of both scores are
then cross-validated to show the integrating phase. For
identifying volatility, in the second phase, the Autoregressive
conditional heteroskedasticity–Lagrange Multiplier test
(ARCH–LM) (Engle, 1982) is engaged in evaluating time
series for heteroscedasticity and in assessing for the exis-
tence of ARCH/GARCH consequence. The Generalised
Autoregressive Conditional Heteroskedasticity (GARCH)
family approach is used, in the third step, to forecast the
volatility of Dhaka Stock Exchange indices.
Bollerslev introduced the GARCH model in 1986 as an
expansion of the ARCH model (Bollerslev, 1986), and it
is convenient for capturing the issue of volatility clusters.
However, a wide range of activities, such as mergers and
acquisitions or terror acts or the introduction of new
 Uttam GOLDER, Nishat RUMALY, A. H. M. SHAHRIAR, Mohammad Jahangir ALAM, Al Amin BISWAS, Mohammad Nazrul ISLAM /
Journal of Asian Finance, Economics and Business Vol 9 No 4 (2022) 0029–0038
technology, can significantly impact the decision-making
process of financial speculators, which in turn can have a
significant asymmetric impact on financial markets. A basic
ARCH/GARCH strategy considers both poor (negative)
and fantastic (positive) events symmetrically and their
influence on price fluctuation similarly; as a result, a severe
favourable or unfavourable shock may have the identical
size and scope in the series’ volatility. Generally, when stock
markets receive positive news, the price settles down into
a condition of calmness, and volatility lessens, and vice
versa. This review uses the GJR-GARCH model, which
examines the asymmetric reaction of conditional instability
to news, to address the restrictions of the standard GARCH
model, which enforces symmetric instability feedback to
constructive and undesirable innovations (Glosten et al.,
1993; Zakoian, 1994).
However, in the case of leverage consequence, an
additional theatrical aspect of financial data is that negative
yields (price drops) incline to enhance instability by a
bigger proportion than constructive yields (price rises) of
the identical scale. The GJR-GARCH model is also able to
explore the impact of leverage effect (Duttilo et al., 2021).
So, the GJR-GARCH model is adapted in this investigation
to find the conditional volatility, and one exogenous dummy
variable is taken in the model’s conditional mean and
conditional volatility equations to expose the consequence
of the COVID-19 pandemic. The GJR-GARCH (1,1) model
with external dummy variable is stated below:
Conditional Mean Equation:
Rk ,t    1 Rk ,t 1  1COVID-19t   k ,t (2)
Conditional Volatility Equation
 k ,t    1 k ,t 1   1 t21  1 I t 1 t21  1COVID-19t  (3)
 1 if  t 1  0 bad news
Here, I t 1  
0 if  t 1  0 good news
Here, Rk,t and εk,t specify the return and residual of stock
index k at period t, consecutively in the conditional mean
equation. Ψ represents the constant, Rk,t−1 and COVID-19t is
the one-period lag of return of stock index k at period t−1,
and dummy variable for COVID-19 epidemic at time t.
Besides, ϑ1 and θ1 are coefficients of Rk,t−1 and COVID-19t,
respectively. In conditional volatility equation σk,t signifies
the conditional standard deviation of stock index k at
period t, and is the constant. τ1, φ1, ω1, and ρ1 are coefficients
of ARCH, GARCH, leverage, and a dummy variable for the
33
COVID-19 pandemic. τ1, and φ1 are non-negative parameters
must have to be significant and represent the ARCH and
GARCH effect, respectively. A higher value of the ARCH
term represents greater responsiveness to new facts, and
greater GARCH values represent a greater sum of timeframe
for the modification to disappear. However, if the value of
(τ1, + φ1) closes to 1; it indicates the existence of a higher
level of volatility (Chaudhary et al., 2020; Rastogi, 2014).
ω1 is the asymmetric or leverage contribution, which states
that undesirable innovations have a greater consequence
than optimistic shocks, and in order to capture the effect
of leverage, ω1 must have to be greater than 0. However,
the positive news (εt−1 ≥ 0), and the negative news (εt−1 < 0)
makes an impact on the conditional volatility equation and
the positive incident influences of φ1, while the adverse event
has a consequence of τ1 + ω1. In the presence of a positive
ω1, negative shocks increase fluctuation more than positive
ones, while a value of 0 signifies that the shocks’ effects are
symmetric. Besides, in the GJR GARCH model, τ1 + ω1 ≥ 0.
The COVID-19 dummy catches the value of 0 during the
pre-COVID-19 era (starts from February 2014 - February
2020) and 1 during the COVID-19 stage (starts from March
2020-September 2021). The presence of a constructive and
statistically meaningful coefficient for COVID-19 in the
conditional mean equation suggests that COVID-19 and
an upsurge in the market’s yield are linked. Conversely,
if the incidence of a negative and statistically meaningful
coefficient for COVID-19 in the conditional mean equation
appears, it advocates that COVID-19 and a downturn in
the market’s yield are linked. In the conditional volatility
equation, COVID-19 may be linked to an escalation in market
fluctuation if the coefficient of COVID-19 is positive and
statistically noteworthy. However, COVID-19 and decreased
market volatility may be linked if the COVID-19 coefficient
is negative and statistically meaningful. However, In the
fourth steps, some diagnostic tests are included to validate
the results.
4.  Results and Findings
The mean returns of all the indices of the entire
sample period express positive outcomes, while in the pre-
COVID-19 era, DSEX and DS30 indicate negative mean
returns, confronting the positive mean return of DSES
(Table 1). During the COVID-19 stage, the mean returns
of all indices considerably provide positive results. Thus,
DSES reveals significantly positive mean results in all three
periods, indicating strong positive market reaction during
the pre-crisis, crisis, and mixed periods, proving that the
Shariah index unveils more excellent performance than
the conventional one due to investors’ ethical and religious
beliefs (Aarif et al., 2021).
 Uttam GOLDER, Nishat RUMALY, A. H. M. SHAHRIAR, Mohammad Jahangir ALAM, Al Amin BISWAS, Mohammad Nazrul ISLAM /
34 Journal of Asian Finance, Economics and Business Vol 9 No 4 (2022) 0029–0038

Table 1: Descriptive Statistics periods, all indices’ higher positive mean returns during the
COVID-19 stage show greater return in the capital market.
Particulars DSEX DSES DS30 All the indices during COVID-19 have lower skewness
values than the pre-COVID-19 and entire sample periods.
(A) Full Sample Period
On the other hand, kurtosis values are higher in the time of
(February 2014 – September 2021)
the COVID-19 stage than the pre-COVID-19 stage, though,
Mean 0.022572 0.025975 0.025123 during the entire sample frame, the kurtosis values remain
Median 0.025649 0.031590 0.009723 higher than those of other periods, indicating high chances
of losses (Chaudhary et al., 2020).
Maximum 9.798457 9.659658 9.684742
Table 2 includes the required prerequisites for stationa-
Minimum −6.736972 −7.242297 −6.394609 rity and ARCH effect testing. This study employed two
Std. Dev. 0.829242 0.827963 0.892791 different tests: ADF and PP unit root testing, and both
Skewness 0.755771 0.688157 0.738724 of which looked for stationarity in the return of the three
indices, namely, DSEX, DSES, and DS30, of Dhaka Stock
Kurtosis 19.47496 20.56694 15.87842
Exchange (DSE). Besides, the ARCH-LM test is employed
Observations 1803 1803 1803 to see if the residual variance is unequal across a span of
(B) Pre COVID-19 Period observed values. Estimations of both ADF and PP unit root
(February 2014 – February 2020) assessment designate that all of these variables (DSEX,
DSES, and DS30) are stationary at the level both in constant,
Mean −0.005466 0.002835 −0.008602 and constant plus trend, and this testifies that when a move-
Median 0.003355 −0.006675 −0.020840 ment in period happens, it does not change the structure
Maximum 5.445266 5.915069 5.575880 of the mean, variance, and autocorrelation of the return
Minimum −2.358775 −2.497429 −2.803976
series. Accordingly, the null hypothesis of no ARCH effect
is disproved by LM statistical results, and an ARCH effect
Std. Dev. 0.712906 0.712484 0.751767 is founded in the time series models’ residuals, supporting
Skewness 0.589751 0.618107 0.601424 GARCH model applicability.
Kurtosis 6.665403 7.081653 6.350423 GJR-GARCH (1,1) findings for all stock indices are
shown in Table 3. The results are divided into three parts.
Observations 1477 1477 1477
Part A of Table 3 represents the outcomes of conditional
(C). During COVID-19 Period mean equations of the three models, where the coefficient
(March 2020 – September 2021) Y is not statistically significant in any indices of DSE, and
Mean 0.149605 0.130813 0.177921 in all cases, the past value of returns significantly predict
the current series positively. However, the past value of
Median 0.173527 0.149203 0.190390
returns of DSEX has a more significant impact in predicting
Maximum 9.798457 9.659658 9.684742 the current return series than the other two indices, namely,
Minimum −6.736972 −7.242297 −6.394609 DSES and DS30. Besides, the COVID-19 impacts all the
Std. Dev. 1.218516 1.217402 1.350638 indices of DSE, increasing the market return. Economic
expansion after the COVID-19 closure, higher remittances,
Skewness 0.578518 0.467902 0.477195 and restoration of export earnings have contributed to this
Kurtosis 19.40100 20.51042 13.82427 result (Hugger, 2021).
Observations 326 326 326 Table 3 (Part B) represents the outcomes of the
conditional volatility equation, and here, the coefficients
of the constant, ARCH, GARCH, leverage, and COVID-19
During the COVID-19 era and entire sample span, are positive and statistically noteworthy for all the indices.
all indices of the Dhaka Stock Exchange provide positive The coefficients of ARCH (τ1), GARCH (φ1), and leverage
median values, opposing negative median values during the (ω1) terms in conditional volatility equations are related to
pre-COVID-19 era for DSES and DS30 indices. All the information or news. The ARCH term represents the most
indices have the highest maximum values and lower mini- recent information, and its statistical significance reveals
mum values during the whole sample timeframe and COVID-19 that the current news has influenced the instability of the
era. In the COVID-19 time, the minimum values of indices stock market. The ARCH term is a statistically significant
range from –7.243397 (DSES) to –6.394609 (DS30). indicator of current market instability, indicating that
Although the standard deviations for all indices during current news affects the stock market. It is worth noticing
the COVID-19 stage are slightly higher than those of other that the Broad index of the DSE (DSEX) has the most
 Uttam GOLDER, Nishat RUMALY, A. H. M. SHAHRIAR, Mohammad Jahangir ALAM, Al Amin BISWAS, Mohammad Nazrul ISLAM /
Journal of Asian Finance, Economics and Business Vol 9 No 4 (2022) 0029–0038 35

Table 2: Unit Root and ARCH-LM Test

Particulars DSEX DSES DS30

ADFcL (t-stat) −15.7753*** −15.7211*** −15.6352***
ADFctL (t-stat) −15.8136*** −15.7242*** −15.6573***
PPcL (t-stat) −35.9626*** −36.3831*** −36.3369***
PPctL (t-stat) −35.9031*** −36.3753*** −36.3310***
ARCH Effect (Obs * R-squared) 130.3473*** 120.8772*** 144.3732***
Note: cL = with constant at level, ctL = with constant and trend at level, ***denotes significant effect at 1% level.

Table 3: GJR-GARCH (1,1) Model with COVID-19 Dummy Variables

Particulars DSEX DSES DS30

Part A: Results of Conditional Mean Equations

ψ −0.003911 (−0.265415) −0.005735 (−0.381702) −0.009799 (−0.617403)
ϑ1 (One Period Lag of Return) 0.198279 (7.987943)*** 0.188490 (7.612478)*** 0.190208 (7.575181)***
θ1 (COVID-19) 0.114422 (2.403041)** 0.097329 (1.945359)* 0.132894 (2.505325)**
Part B: Results of Conditional Volatility Equations
Ω 0.024766 (4.842529)*** 0.023868 (5.793573)*** 0.023851 (5.394064)***
τ1 (ARCH Effect) 0.155042 (7.366594)*** 0.148265 (7.444425)*** 0.146344 (7.860271)***
φ1 (GARCH Effect) 0.745262 (37.17926)*** 0.753488 (39.96789)*** 0.778161 (41.22092)***
ω1 (Leverage Effect) 0.141388 (4.926963)*** 0.144003 (5.917558)*** 0.105147 (4.443981)***
ρ1 (COVID-19) 0.021723 (2.371155)** 0.027035 (2.964560)*** 0.023632 (2.093879)**
Part C: Model Statistics
τ1 + φ 1 0.900304 0.901753 0.924505
Schwarz criterion 2.084556 2.091906 2.247098
ARCH-LM Tests (Obs * R-squared) 1.270877 0.745152 1.399794
Note: Records in ( ) specify the value of Z-statistics. ***, **, and * denote significant effect at 1%, 5%, and 10% level, consecutively.

considerable ARCH effect, while the Blue-chip index
(DS30) has the lowest, and the ARCH effect of the Sharia
index (DSES) is in the second position in the case of ARCH
effect. So, the DSEX is mainly influenced by current news,
followed by DSES, and DS30, respectively.
Besides, there is a statistical significance to the GARCH
term, which implies that past information influences market
volatility. If the GARCH coefficient is sizable, it indicates
continuous volatility and indicates that shock to conditional
variance takes a prolonged period to dissipate. Thus, the
outcome reveals that shocks to conditional variance require
the most prolonged period to diminish in the context of
the Blue-chip index (DS30), followed by the Sharia index
(DSES) and the Broad index of the DSE (DSEX).
Any shock may have continuing consequences on
the predicted values of the conditional variance if the
coefficients of ARCH and GARCH terms are jointly near to
one. It indicates that any shock may have long-lasting effects
on , which indicates that conditional variance is durable. The
result (Table 3, Part C) indicates that if there is any shock
in the Blue-chip index (DS30), it has the most long-lasting
effects on conditional volatility, followed by the Sharia index
(DSES) and the Broad index of the DSE (DSEX). However,
if the value is less than one, it indicates the mean-reverting
process. From part C of Table 3, the Broad index of DSE
(DSEX) has the highest mean-reverting process, while the
Blue-chip index (DS30) has the slowest mean-reversion
capacity. However, as for mean-reversion capacity, the
Sharia index (DSES) falls somewhere in the middle of the
other two indices.
Since the leverage term verifies the asymmetric signal
on stock return and advises that the adverse shock story
 Uttam GOLDER, Nishat RUMALY, A. H. M. SHAHRIAR, Mohammad Jahangir ALAM, Al Amin BISWAS, Mohammad Nazrul ISLAM /
36 Journal of Asian Finance, Economics and Business Vol 9 No 4 (2022) 0029–0038
appears to rise volatility more than favourable shock news,
meaning that negative shock story leads to more instability
than positive shock stories in the marketplace. The outcomes
of Table 3, part B, reveal that the Blue-chip index (DS30)
has the lowest asymmetric impact following the DSE Broad
index (DSEX). However, the Sharia index (DSES) is in the
middle of the two other indices affecting the leverage effect.
The COVID-19 variable is included in the conditional
volatility equations using the GJR-GARCH (1,1) model.
The findings of Table 3, part B, show that the infection
has considerable positive consequences on the conditional
variance for all indices, revealing that COVID-19 exacerbated
market instability in all indices. The infection of COVID-19
intensified market volatility most in the Sharia index (DSES)
following the Blue-chip index (DS30). However, the DSE
Broad index (DSEX) is least affected by the coronavirus,
and this outcome is consistent with Chaudhary et al. (2020),
Duttilo et al. (2021), and Yong et al. (2021).
Table 3 (Part C) reports the result of the diagnostic test of
this GJR-GARCH model, where the ARCH-LM test is used
to identify heteroskedasticity in the square of standardised
residuals of the model. The outcome implies that the models
are homoskedastic, as all three models are executed suitably
in this investigation.
5. Conclusion
The consequence of COVID-19 on the Dhaka Stock
Exchange’s (DSE) performance, Bangladesh’s largest stock
market, is investigated in this review. This study employs
the GJR-GARCH (1,1) model with dummy variable taking
the daily return of three indices, namely, DSE Broad index
(DSEX), Sharia index (DSES), and Blue-chip index (DS30)
from February 2014 – September 2021. The outcomes
disclose that the shock of COVID-19 outbreaks substantially
influences the volatility and return of all stock indices
of DSE. All the indices show volatility in their respective
conditional volatility equations. The COVID-19 infection
demonstrates a substantial positive impression on conditional
volatility equations, which increases the market’s volatility
in all indices. However, it increases volatility most in the
Sharia index (DSES) following the Blue-chip index (DS30)
and the DSE Broad index (DSEX). The study reveals that
current events affect the stock market of Bangladesh, and
the DSE Broad index (DSEX) has an enormous ARCH
effect, followed by the Sharia index (DSES) and Blue-
chip index (DS30). The result shows that disruptions to
conditional variance take the maximum duration to decline
in the setting of the Blue-chip index (DS30), followed by
the Sharia index (DSES) and the Broad DSE index (DSEX).
Besides, the Blue-chip index (DS30), followed by the DSE
Broad index (DSEX), and the Sharia index (DSES), has the
lowest asymmetric impact. Moreover, the study also finds
a considerable constructive influence of COVID-19 on the
conditional mean equations in all indices of DSE. Economic
recovery following the shutdown to avoid the spread of
COVID-19, increased remittances, and a resumption of
export income may have led to this consequence (Hugger,
2021).
Here are some significant consequences, e.g., profitable
possibilities for traders and speculators can be found in
market inefficiencies (Golder et al., 2019), which may be
exacerbated by COVID-19. In order to get the most out of
the investment, rational investors should have an eye for
insider trading. As a result of a crisis, income and economic
disparity can widen because investors with a large amount
of liquidity may go to the capital market for opportunities to
make money.
However, this model does not account for macroeco-
nomic parameters like GDP, stock market capitalisation,
interest rate, exchange rate, oil price, etc. Thus, this argu-
ment seems intuitive. Future studies should prudently reflect
the latent belongings of macroeconomic variables to gather
more knowledge in the field. Furthermore, these findings
only apply to the Dhaka Stock Exchange’s indices (DSE).
It is possible that extending this research to include
Bangladesh’s second major stock exchange, the Chittagong
Stock Exchange (CSE), and studying the nature of connec-
tions between COVID-19, and CSE might provide different
conclusions.
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