Siti Norsafura Md Sobri, Noraini Noordin and Nur Mardziah Aziz Jaafar
Keywords: COVID-19, oil prices, stock market, economy policy uncertainty, wavelet
Abstract: During the COVID-19 outbreak, the economic policy became uncertain. Oil prices slumped to over 30% after Saudi authorities suggested a price per barrel discount from six to eight dollars to their main customers in USA, Europe and Asia. Supply shock took place after Russia protested against the production cut agreement and caused an excess volume of discounted oil. Global demand also declined over 33%. Negative stock prices influenced local trading. Stocks became more volatile and industries were less stable. It has been a question on whether economic uncertainty and oil prices were affected by COVID-19, or is it the fall of oil price that contributed to the economic instability and stock market volatility. In this study, the researcher used three models to analyse the connectivity between the recent spread of COVID-19 in Malaysia, Malaysia stock market, oil prices in Malaysia and Global Economic Policy Uncertainty (GEPU) in time-frequency domain. Data from January 25 2020 to May 25 2020 were imported in MATLAB software and the Wavelet toolbox was used to generate and analyse signals and images. Here, the researcher used the Continuous Wavelet Transform to analyse the movement of each variable, the Wavelet Coherence method to evaluate the interactions between the selected variables and the Wavelet-based Granger Causality to test the robustness of the coherence wavelet. The findings of this study disclosed the impact of COVID-19 reported cases towards the oil price slumps. Stock market volatility was affected by the GEPU index while oil prices were influenced by stock market and GEPU index. To obtain more precise results, it is recommended that future researchers use Economic Policy Uncertainty of Malaysia instead of GEPU and add more sample data.
