Analysis contagion effect of COVID-19 in China, Thailand, Indonesia, and Singapore: GARCH model
List of Authors
  • Brady Rikumahu , Sri Herlina Riz

Keyword
  • Stock Return, Contagion Effect, Stock Index, GARCH, Granger Causality

Abstract
  • The spread of the Coronavirus (COVID-19) caused several countries in the world to experience a direct impact of contagion including in China, Thailand, Indonesia, and Singapore. The Financial Sector is one of the areas affected by the spread of various countries including the stock index indicating instability on the chart. This study aims to analyze whether contagion effects occur among the markets of China, Thailand, Indonesia, and Singapore as well as in which countries have contagion effects. The data used in this study are time series data in the form of daily stock closing price data from Shanghai Stock Exchange 50 (SSE 50), Stock Exchange of Thailand 50 (SET 50), LQ45, and Straits Times Index (STI) for the period January 2, 2020, to July 31, 2020. The daily stock movement data was taken from yahoo finance and investing. This research uses several methods, namely Augmented Dickey-Fuller Unit Test (ADF), Heteroscedasticity Test, Autoregressive Moving Average (ARMA) Modeling, Generalized Autoregressive Conditional Heteroscedasticity (GARCH) Modeling, and Granger Causality Test with stock returns as variables that will be used in this study on the Shanghai Stock Exchange 50 (SSE 50), Stock Exchange of Thailand 50 (SET 50), LQ45, and Straits Times Index (STI). The results showed that the return of the SSE50 did not experience any heteroscedasticity problems so could not proceed to GARCH modeling. Meanwhile, in SET50, LQ45, STI has problems with heteroscedasticity, so GARCH modeling can be done. The best GARCH modeling produced were GARCH(1,2), GARCH(1,1), GARCH(1,1), GARCH(1,1), GARCH(1,2), and GARCH(1,3). Contagion effect occurs in each index, but the country that does not have connectedness is SET50 index in Thailand. The movement of shares in STI Singapore is influenced by the movement of SET50 Thai shares, the movement of Indonesian LQ45 shares is influenced by the movement of STI Singapore and SET50 Thailand shares.

Reference
  • 1. Cappiello, L., Gerard, B., & Manganelli, S. (2004). The Contagion Box: Measuring Financial Market Co-Movements by Regression Quantiles. SSRN Electronic Journal, February, 1–23. 2. Dornbush, R., Park Y. C., & Claessens, S. (2000). Contagion: Understanding How It Spreads. World Bank Research Observer, 15 (2), 177-197. 3. Indonesia Stock Exchange. (2020). Pengantar Pasar Modal. https://www.idx.co.id/investor/pengantar-pasar-modal/ 4. Investing. (2020). SET 50 (SET 50). [Online]. https://www.investing.com/indices/set-50-historical-data. [5 Oktober 2020]. 5. Investing. (2020). Shanghai SE (SSE50). [Online]. https://www.investing.com/indices/shanghai-se-50 [5 Oktober 2020]. 6. Purnomo, S. D., Hariyani, I., & Serfiyani C. S. (2013). Pasar Komoditi Perdagangan Berjangka dan Pasar Lelang Komoditi (1 ed.). Yogyakarta: Jogja Bnagkit Publisher. 7. Rosadi, Dedi. (2011). Analisis Ekonometrika & Runtun Waktu Terapan dengan R. Yogyakarta: C. V Andi Offset. 8. Samsul, M. (2006). Pasar Modal & Manajemen Portfolio (11 ed.). PT Gelora Aksara Pratama. 9. Yahoo Finance. (2020). LQ45 Index (^JKLQ45). [Online]. https://finance.yahoo.com/quote/%5EJKLQ45/history?p=%5EJKLQ45. [5 Oktober 2020]. 10. Yahoo Finance. (2020). STI Index (^STI). [Online]. https://finance.yahoo.com/quote/%5ESTI?p=%5ESTI. [25 Oktober 2020].