Abstract:
This study investigates the effects of structural breaks on the Colombo Stock Exchange (CSE) performance over the COVID-19 period. Stock market returns and volatility are used to proxy the stock market performance. Structural breaks were identified by using the Bai-Perron (2003) test. An ARMA (p,q) model fitted for stock returns was augmented using dummy variables for the structural breaks to measure the effect of structural breaks on stock market returns. The model was further extended as a volatility regression model (GARCH, EGARCH, or TGARCH) to measure the effect of structural breaks on stock market volatility. The results confirmed the presence of structural breaks following COVID-19-related news in CSE. Seventeen such breaks were identified. However, only three significantly influenced the stock market returns and the volatility. As a result, the study's consequences affect stockbrokers, multinational organizations, portfolio managers, and investors, allowing them to foresee market patterns and take preventative action in the event of structural breaks.
