Abstract
This paper explores the impact of the COVID-19 pandemic on the Shanghai Stock Exchange (SSE) index returns and volatility from October 2019 to March 2020. The GARCH results show that the pandemic negatively affected the SSE stock returns during the spread of the virus, and the conditional variance showed increased variation at the time. However, the increased volatility did not cause a market crash as Patel & Sarkar (1998) and Mishkin & White (2002) reported. The negative effect on stock returns and the increased volatility might be justified because well-diversified markets can alter the wealth effects on composite stock markets, and they can make a quick recovery after crises. When comparing the effects of the pandemic to those of the 2008 financial crisis on SSE returns, the results show higher risk values and much thicker tails of probability distribution during the pandemic. Both the Covid-19 pandemic and the 2008 financial crisis negatively affected stock returns, but the effect on volatility was stronger during the pandemic.