Time-Frequency Co-Movement between Covid-19 and Pakistan’s Stock Market: Empirical Evidence from Wavelet Coherence Analysis

ABSTRACT

Purpose: This paper aims to analyze the impact of COVID-19 on Pakistan's traditional (KSE-100) and Islamic (KMI-30) stock market returns. Methodology: This study uses daily data of total cases and deaths of COVID-19 from February 25, 2020 to May 26, 2021. We utilize continuous wavelet transform (CWT), partial wavelet transforms and wavelet coherence transform (WCT) approaches to inspect the impact of COVID-19 on the stock return of KSE-100 and KMI-30 from March 13, 2020 to May 26, 2021. Findings: Contrary to European and several Asian stock markets, these both indexes behave the opposite during COVID-19. This study indicates that COVID-19 influences both these indexes and has a significant impact on both KSE-100 and KMI-30 index in the longer time frame. This study also discloses that with the increasing number of total cases, total death stock market daily return. Practical implications Investors diversify their portfolio in the desire to achieve maximum return on minimum risk so they diversify across different countries and certain emerging market indexes might provide them a big edge to maximize their return. This diversified strategy can financially support different well-performing emerging markets and save emerging economies. This study enhances the investors trust and confidence to invest in both KSE-100 and KMI-30 due to favorable return of stocks. Originality/value This examines the co-movement between COVID-19 and the traditional and Islamic stock index of Pakistan whereas, the previous paper only examined the volatility of these indexes during COVID-19. This study also extends the literature that examines how COVID-19 affected the traditional and Islamic stock market indexes.