Impact of COVID-19 Pandemic and Russo-Ukrainian War on Tunisian Stock Exchange Performance and Volatility

The purpose of our study was to investigate the impact of COVID-19 pandemic and the Russo-Ukraine (RU) war on the return volatility and value of the Tunisian Stock Exchange proxied by TUNINDEX. We applied GARCH (1,1) to assess the impact on the index return volatility, using daily observations from January 2019 to December 2022, and a multiple linear regression to determine the effect on the index value, based on monthly observations for January 2018 to December 2022. GARCH output revealed that both exogenous shocks led to higher stock market return volatility. The regression results disclosed statistically significant though opposite impacts on the index price. The pandemic exerted a positive, though extremely mild impact on the Index value, while the war had a negative effect on its performance. As for the control variables, both inflation rate and industrial production index exhibited positive effects on the TUNINDEX values, while trade balance had a negative impact. GDP growth rate and interest rate however, showed no significant influence on the index performance during the study period. We faced some difficulty accessing data, in addition to the scarcity of data on other potentially relevant factors, along with a short study period. Incorporating new variables i.e. mortality rates, unemployment due to the lockdown, travel bans effect, trade dependence with Ukraine and Russia, and using Time-Varying Vector Auto Regressive model may add additional value to our work. The paper contributes to the literature on external shocks impacts on stock markets, specifically on the Tunisian stock exchange. In addition, it offers insights on the potential expected economic effects of unpredicted events, and may help identify appropriate strategies to mitigate their dramatic effects. Finally, this research presents the first investigation on the impact of the Russian invasion on Ukraine on the Tunisian stock exchange by probing into the impact on both volatility and performance of the market’s index.