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JEL Classification System

C58, F37, G1, G15

Abstract

The COVID-19 pandemic unleashed shocks that triggered severe global economic contraction and spawned sizeable financial market fluctuations. This paper examines the dynamic connectedness between ASEAN stock markets and major global stock markets using the dynamic connectedness framework developed by Diebold and Yilmaz (2009, 2012). Empirical results reveal that ASEAN stock markets and other emerging markets have experienced higher spillovers from global equity markets during the pandemic than in normal times. In addition, the role of ASEAN region spillovers has increased significantly during the COVID-19 outbreak. This study contributes to the existing literature by investigating the extent of dynamic connectedness between ASEAN and global stock markets during the COVID-19 pandemic using an expanded period that includes vaccine development outcomes. Using linear panel data and time series models, results show that COVID-19-related variables such as mortality rates have increased spillovers. On the other hand, the number of vaccinated individuals has helped reduce spillovers. In addition to the CBOE Volatility Index (VIX), the infectious disease Equity Market Volatility tracker (EMV) provides a crucial proxy for the financial market’s risk factors. These results provide insights into how ASEAN stock markets reacted during the pandemic, providing important lessons for investors and policymakers on how the pandemic’s effect on stock market connectedness could be mitigated.

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