Stock Market Reactions of Malaysian Firms and Industries towards the Announcement of COVID-19 Movement Control Order

Purpose: This paper examines the stock market reactions of firms and industries in Malaysia to the government's COVID-19 movement control order (MCO) announcement. In addition, we observe if the confirmation of human-to-human transmission of coronavirus by the Chinese government and ease of restrictions on economic activities by the Malaysian government affects the abnormal returns. Finally, we analyse the effect of COVID-19 number of confirmed cases on firm abnormal returns. Design/methodology/approach: We use an event study methodology to determine the abnormal returns between day -30 to day 30 of the announcements. In addition, we employ the regression estimation to determine whether the COVID-19 number of confirmed cases explain the abnormal returns. Findings: We find that investors react negatively to the announcement of the MCO and confirmation of the human-to-human transmission of coronavirus over the event windows. However, the cumulative average abnormal returns (CAARs) started to recover when stimulus packages were introduced, and the lockdown measures were eased, allowing businesses to reopen. We also find that only firms in the healthcare sector reported significant positive CAARs. Stock returns of the utilities and telecommunication firms showed no changes, while eight other sectors fell remarkably. The downfall of the stock market can be attributed to economic uncertainty, fear of death, a halt in economic activities and a relatively increased number of COVID-19 positive cases. The findings are supported by the regression results, which show that the COVID-19 number of confirmed cases adversely affects firm abnormal returns. Practical implications: This study suggests that stock prices incorporate bad and good news surrounding the announcements of major international and local events related to the COVID-19 pandemic. Thus, investors should consider such factors in making investment decisions. Originality: To the best of our knowledge, this paper is one of the early research works investigating the stock market reactions, at the firm and industry levels, to the COVID-19 major announcements using an event study methodology. This study is timely in light of the recently increasing calls for researchers to analyse the potential economic impacts of COVID-19 on global capital markets