THE VOLATILITY SPILLOVER EFFECT OF COVID-19 ON INVESTOR SENTIMENT IN JOHANNESBURG STOCK EXCHANGE

This study investigates the volatility spillover effect of the COVID-19 pandemic on investor sentiment for the Johannesburg Stock Exchange (JSE). The study analyses how new cases and deaths affected the sentiment of participants in the stock market during the pandemic. It uses the South African Volatility Index (SAVI) as the main measure of market sentiment and the returns of the JSE main index. Daily data on the pandemic from 03/01/2020 to 19/03/2023 was obtained from the World Health Organisation (WHO) while the rest of the financial data was obtained from Yahoo Finance. The methods used are the Baba, Engle, Kraft and Kroner (BEKK) and dynamic conditional correlation (DCC) multivariate GARCH with the mean equations as a Vector Auto-Regressive (VAR) system. The results show that the pandemic had a spillover effect on investor sentiment. This spillover was asymmetric implying that negative news had more effect than positive news. Furthermore, new cases had more spillover effects on investor sentiment than new deaths recorded. The study recommends that investors should trade cautiously during pandemics considering the increased volatility and that policymakers need to minimise contagion effect from the virus to financial markets by calming down the markets or even halting trading temporarily.