Impact of COVID-19 on the Saudi stock market: analysis of return, volatility and trading volume

The aim of this study is to investigate the effect of the coronavirus health crisis (COVID-19) on the performance of the Saudi stock market, the Tadawul. Prices of the Tadawul All-Shares Index (TASI) and all sector indices are collected from December 2019 to end of July 2020. Analysis of the pandemic on the return and volatility is carried out using the GARCH (1, 1) model. The results show that the pandemic has a positive impact on the mean returns of all indices except for the REITS sector, but the impact is mostly insignificant. Analysis of the pandemic on the volatility shows that the TASI itself experienced lower volatility during the pandemic period but the impact is insignificant, while out of 21 sectors only 9 experienced significant impacts on volatility. Out of the 9 sectors, 5 experienced significantly increased volatility, while 4 experienced significantly lower volatility. Analysis of the impact of trading volume on the volatility shows stronger investor sentiment influencing volatility for the sectors that experienced higher volatility only. This study provides further understanding of how various market participants around the world react to the COVID-19 pandemic and the need for portfolio diversification to reduce risk during crisis periods.