The Co-Integration and Causality Effect Between Global Covid-19 Pandemic and the Stock Market Return in Malaysia: An Exploratory Sequential Mixed Methods Approach

The COVID-19 pandemic is one of the most unparalleled disasters the world has ever seen. Previously, the global community hasfaced the Middle East Respiratory Syndrome (MERS), Ebola Virus Disease (EVD), and Severe Acute Respiratory (SARS). However,the tremendous rate of infection created by the global COVID-19 pandemic is unmatchable with its rapid spread all over the world. Therefore, it is considered as a Black Swan event as created previously by the 2008 financial crisis, SARS, and 9/11 terrorist attack. All these events have triggered panic selling that affected the confidence of investors and businesses. Subsequently, stock market performance has affected the choice of investment decisions that translated into stock return. Therefore, this paper was undertaken to investigate the co-integration and causality relationship among global COVID-19 daily infected cases, COVID-19 recoveries rate, COVID-19 death rate, investor sentiment, government policy, foreign exchange rate, Malaysia gold price, and crude oil price towards the KLCI stock market return. This study employed an exploratory sequential mixed methods approach along with Johansen and Julius Co-Integration and Granger Causality in explaining the Malaysia stock market return. The empirical analysis concluded that COVID-19 daily cases, COVID-19 recoveries rate, government policy and foreign exchange have had a long-term effect in explaining the Malaysia stock return. On the other hand, all the study variables, except for government policy indicated a short-term effect on the Malaysia stock return. This study will contribute significantly to the body of finance literature on the impact of a disease outbreak, with highlights on the considerations of investors on the global COVID-19 pandemic in illuminating the variation of Malaysia stock market returns.