Multiple-step value-at-risk forecasts based on volatility-filtered MIDAS quantile regression: Evidence from major investment assets

This study examined the response of stock prices on the Indonesia Stock Exchange (IDX) to COVID-19 using an event study approach and the GARCH model. The research sample is the closing price of the Composite Stock Price Index (JCI) and companies that are members of LQ-45 in the 40-day period before the COVID-19 incident, 1 day during the COVID-19 incident (March 2, 2020) and 10 days after, January 6, 2020 – March 16, 2020. Empirical findings prove that abnormal returns react negatively to COVID-19, JCI volatility fluctuates widely during the COVID-19 event, and the GARCH(1,2) model can be used to assess volatility and predict stock abnormal returns in IDX in market conditions infected with COVID-19. The practical implication of the study’s findings for investors is that the COVID-19 event caused stock price volatility, which affects abnormal returns. Therefore, to face the conditions of uncertainty and increased volatility in the future, several lines of risk management are needed in managing a stock portfolio. In addition, it also opens up opportunities for speculators to profit in an inefficient market environment. This study is based on the empirical literature currently being developed to investigate the phenomenon of stock price volatility behavior during COVID-19 on the IDX. The GARCH model used proves that during the COVID-19 pandemic, stock price volatility increases and leads to a decrease in abnormal returns. The empirical findings also validate the efficient market hypothesis theory related to the study of events and the theory of financial behavior related to uncertainty.

The transformations in internet technology and financial innovation have led to the prevalence of direct finance, causing indirect finance to contract and concerns among traditional banks and insurance channel operators to seek transformation to innovate traditional services with advanced technology applications. The research compares the sales revenue flows of traditional banks, insurance companies, and mutual fund institutions, using quantile regression methods with five mutual fund factors: Jensen’s indexes, expenses, risks, sizes, and turnover rates. The sample statistics from 2001 to 2016 were evident, showing the results that sales revenue flows of bank and insurance companies did not decrease when compared to institutional fund investors, but instead, grew substantially, owing to the significant relationship of better technological services and financial innovation by banks and insurance companies. The research contribution is to point out that financial industry should focus, review and strengthen its most competitive core services inside, which are less challenged by outside competitors. By adhering to financial innovation and internet technology, it is still possible for traditional banks and insurance channels to gain substantial market shares with concentration on their core competitive services.

The paper investigates the impact of institutional quality on economic growth by taking 48 countries in Asia between 2005 and 2018. By using the quantile regression methods with panel data, institutional quality is found to be a key factor of economic development. However, in the lower-income Asian countries, the institution with better quality appears to promote the growth more effectively than in the higher-income ones. Moreover, the paper also finds out a nonlinear relationship between institutions and economic growth. The results show that there is an institutional threshold for economic growth to reach its highest level. If the institution indicator exceeds the threshold, it causes the reverse effect on the growth. Moreover, the economic growth of Asian countries is also affected by inflation (INF), labor force (LABO), trade openness (OPEN), and infrastructure (TELE). From that, the study suggests some policy implications for Asian countries and Vietnam, in particular, in order to improve institutions contributing to economic growth.