Abstract
The COVID-19 pandemic has created enormous economic and market uncertainty in the global economy. However, businesses and industries weren’t affected homogeneously; whilst others suffered, some blossomed. Equity markets were not spared from the detrimental effects of the pandemic. This study investigates the impact of COVID-19 on stock returns’ conditional volatility in different South African stock market sectors using standard symmetrical and asymmetrical GARCH models. The MDCC-GARCH model was employed to understand the dynamics of conditional correlations between the leading indices. The results suggest that COVID-19 has increased return volatility for the majority of the sectors; however, the sectors weren’t affected in the same way. The DCC-GARCH model shows significant, high, positive correlations between the major and Small Cap indices, suggesting insignificant diversification benefits during the pandemic. The alternative exchange (ALTX) was found to have declining correlations with the main sectors, indicating an increase in diversification benefits offered by the ALTX following the pandemic shock.