Determining the Relationship between Coronavirus and Stock Market Volatility in Emerging Countries

The Coronavirus pandemic is the world's most severe health and economic crisis in modern history. During the early stages of the pandemic, the collapse in financial markets was apparent, which prompted researchers to investigate the possible effects of the outbreak on financial markets. In this study, we examine the connection between the volatility in the Middle Eastern emerging financial markets and the rising number of confirmed cases of the coronavirus. The study uses a two-step analysis- wavelet-based ARMA-EGARCH (1,1). The result provides evidence for the correlation between market volatility and percentage change in the number of confirmed coronavirus cases in all countries under the study. Moreover, the correlation between market volatility and confirmed cases starts after the beginning of the pandemic for most countries. This correlation locates at a separate period and at different frequencies. The study's findings also indicate that a rise in confirmed cases has a negative impact on stock market returns and that a decline in confirmed case growth reduces market volatility. The study's findings also indicate that market risk has increased as a result of the outbreak; specific market reactions are correlated with the severity of the pandemic in each state.