Bank diversification strategy and stock price volatility during COVID-19 in an emerging country

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Abstract

This study examines the impact of the COVID-19 pandemic on stock price volatility in the Indonesian banking sector and evaluates the moderating role of income diversification. The analysis covers 27 listed commercial banks during the 2017–2023 period across three phases: pre-pandemic, pandemic, and post-pandemic. Grounded in the efficient market hypothesis (EMH) and portfolio diversification theory, which suggest that markets rapidly reflect new information and that diversification can reduce risk, the study employs a fixed-effects regression model to assess volatility dynamics (Fama, 1970; Markowitz, 1952). The findings show that stock price volatility significantly increased during the pandemic, reflecting heightened market uncertainty, and gradually normalized in the post-pandemic phase. While income diversification does not significantly influence volatility in normal periods, it proves to be an effective risk-mitigation strategy during crisis periods. Banks with higher levels of diversification experienced lower volatility amid the pandemic, highlighting the stabilizing role of diversified income sources in times of market distress. These findings underscore the importance of strategic income diversification for enhancing resilience in the banking sector, contributing empirical evidence on how diversification interacts with systemic shocks, and offering practical implications for risk management and regulatory strategies in emerging financial markets.

Keywords: Stock Price Volatility, Income Diversification, COVID-19 Pandemic, Indonesian Banking Sector

Authors’ individual contribution: Conceptualization — F.D. and A.P.; Methodology — F.D., A.P., D.S., and R.Y.; Investigation — F.D., A.P., D.S., and R.Y.; Resources — F.D., A.P., and R.Y.; Data Curation — A.P. and R.Y.; Writing — Original Draft — F.D., A.P., D.S., and R.Y.; Writing — Review & Editing — A.P. and R.Y.; Supervision — A.P.; Project Administration — F.D., A.P., and D.S.; Funding Acquisition — F.D., A.P., and D.S.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: C23, G01, G21, G32

Received: 01.08.2025
Revised: 11.12.2025; 27.02.2026
Accepted: 20.03.2026
Published online: 24.03.2026

How to cite this paper: Defung, F., Paminto, A., Setyadi, D., & Yudaruddin, R. (2026). Bank diversification strategy and stock price volatility during COVID-19 in an emerging country. Corporate and Business Strategy Review, 7(2), 129–139. https://doi.org/10.22495/cbsrv7i2art12