Stock Market Volatility in the United Kingdom: Simulating Post-COVID-19 Recovery

Authors

Bala A. Dahiru, Federal Inland Revenue Service, Abuja, FCTFollow
Mohammed Shuaibu, Department of Economics, University of Abuja
Najibullah Hassanov, Department of Agricultural Economics and extension, Kabul University, Kabul, Afghanistan

Keywords

COVID-19 pandemic, EGARCH, FTSE-100 index, stock market, simulation, United Kingdom

Abstract

This paper investigates the time it would take for the FTSE-100 index to reach its post-COVID-19 peak. The paper utilises an exponential generalised autoregressive conditional heteroscedasticity (EGARCH) model that accounts for leverage effect and asymmetries. The preferred models amongst competing variants was the Autoregressive Moving Average (ARMA)-EGARCH(2,1) specification and was used to predict daily FTSE-100 data from 5th January 2000 to 21st June 2024. The empirical exercise showed that the COVID-19-induced financial crisis negatively affected the United Kingdom’s stock market performance. The results show that the FTSE100 index could reach its post-pandemic peak around 27th August, 2024 (two months after 21st June 2024. Thus, it took about 3 years for the FTSE-100 to reach its prepandemic level and surpassed it in May 2024 before declining. The paper makes a case for strong and coordinated financial and monetary policy responses that can help mitigate the short-term effect of shocks on stock market performance and speed up the recovery process, such as reforming the UK’s corporate governance rule for listed firms, attracting more technology startups and diversifying of the index’s composition towards relatively low risk assets.

Issue

15

Volume

1

First Page

185

Last Page

205

Recommended Citation

Dahiru, Bala A.; Shuaibu, Mohammed; and Hassanov, Najibullah (2024) "Stock Market Volatility in the United Kingdom: Simulating Post-COVID-19 Recovery," CBN Journal of Applied Statistics (JAS): Vol. 15: No. 1, Article 6.
Available at: https://dc.cbn.gov.ng/jas/vol15/iss1/6