THE ALTERED VOLATILITY SPILLOVER SEQUENCE UNDER COVID-19: INDIAN SECTORAL INDICES IMPACT DEIBOLD YILMAZ INDEX
Keywords:
Diebold and Yilmaz Index, Volatility Spillover, Bombay Stock Exchange, Sector Indices, COVID-19.
Abstract
The Industrial sectors have their unique place in the economic interlinkage. The sectoral valuation reflected by each sector indices shows how each sector responds to different events. The exogenous event Covid-19 impact has been differential due to the impact of lockdown and other Covid-19 appropriate restrictive measures. The present paper examines the change in the volatility spillover induced by Covid-19. The study uses daily sectoral indices data from India's oldest exchange, the Bombay Stock Exchange. Data from January 2010 to November 2020 has been split into four subgroups to find how COVID-19 has affected the volatility spillover using the Diebold and Yilmaz Index. Ranks have been assigned to find the change in the four periods' volatility to the volatility spillover's magnitude and direction. The impact of the COVID-19 is strong enough to change the volatility spillover, which followed a system. Capital Goods volatility increased three times. At the same time, the Auto sector becomes a volatility receiver instead of the net volatility dispenser, from 2.5% before COVID-19 to -3.39% after COVID-19 lockdown. Bankex remains unaffected by Covid-19.
JEL Classification Codes: G01, G11, D81, D85.
References
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Liu, H., Manzoor, A., Wang, C., Zhang, L., & Manzoor, Z. (2020). The COVID-19 Outbreak and Affected Countries Stock Markets Response. International Journal of Environmental Research and Public Health, 17(8), 2800. https://doi.org/10.3390/ijerph17082800
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Loginov, A., & Heywood, M. (2020). On the different impacts of fixed versus floating bid-ask spreads on an automated intraday stock trading. The North American Journal of Economics and Finance, 54, 101247. https://doi.org/10.1016/j.najef.2020.101247
Long, S., Zhang, M., Li, K., & Wu, S. (2021). Do the RMB exchange rate and global commodity prices have asymmetric or symmetric effects on China’s stock prices? Financial Innovation, 7(1). https://doi.org/10.1186/s40854-021-00262-0
Martini, M., Gazzaniga, V., Bragazzi, N. L., & Barberis, I. (2019). The Spanish Influenza Pandemic: a lesson from history 100 years after 1918. Journal of Preventive Medicine and Hygiene, 60(1), E64–E67. https://doi.org/10.15167/2421-4248/jpmh2019.60.1.1205
McWilliams, A., & Siegel, D. (2001). Corporate Social Responsibility: A Theory of the Firm Perspective. The Academy of Management Review, 26(1), 117. https://doi.org/10.2307/259398
Parkinson, M. (1980). The Extreme Value Method for Estimating the Variance of the Rate of Return. The Journal of Business, 53(1), 61–65. Retrieved from http://www.jstor.org/stable/2352357
Ramelli, S., & Wagner, A. F. (2020). Feverish stock price reactions to COVID-19. Review of Corporate Finance Studies, 9(3), 622–655. https://doi.org/10.1093/rcfs/cfaa012
Salisu, A. A., Sikiru, A. A., & Vo, X. V. (2020). Pandemics and the emerging stock markets. Borsa Istanbul Review, 20, S40–S48. https://doi.org/10.1016/j.bir.2020.11.004
Sehgal, S., Ahmad, W., & Deisting, F. (2015). An investigation of price discovery and volatility spillovers in India’s foreign exchange market. Journal of Economic Studies, 42(2), 261–284. https://doi.org/10.1108/JES-11-2012-0157
Taubenberger, J. K., & Morens, D. M. (2006). 1918 Influenza: the Mother of All Pandemics. Emerging Infectious Diseases, 12(1), 15–22. https://doi.org/10.3201/eid1209.05-0979
The Spanish flu (1918-20): The global impact of the largest influenza pandemic in history - Our World in Data. (n.d.). Retrieved from https://ourworldindata.org/spanish-flu-largest-influenza-pandemic-in-history
Xiao, X., & Huang, J. (2018). Dynamic connectedness of international crude oil prices: The Diebold-Yilmaz approach. Sustainability (Switzerland), 10(9). https://doi.org/10.3390/su10093298
Yousaf, I., & Ali, S. (2020). Discovering interlinkages between major cryptocurrencies using high-frequency data: new evidence from COVID-19 pandemic. Financial Innovation, 6(1), 1–18. https://doi.org/10.1186/s40854-020-00213-1
Zimmer, S. M., & Burke, D. S. (2009). Historical Perspective — Emergence of Influenza A (H1N1) Viruses. New England Journal of Medicine, 361(3), 279–285. https://doi.org/10.1056/NEJMra0904322
Antonakakis, N., Cunado, J., Filis, G., Gabauer, D., & Perez de Gracia, F. (2018). Oil volatility, oil and gas firms and portfolio diversification. Energy Economics, 70, 499–515. https://doi.org/10.1016/j.eneco.2018.01.023
Aslam, F., Mohmand, Y. T., Ferreira, P., Memon, B. A., Khan, M., & Khan, M. (2020). Network analysis of global stock markets at the beginning of the coronavirus disease (Covid-19) outbreak. Borsa Istanbul Review, 20, S49–S61. https://doi.org/10.1016/j.bir.2020.09.003
Bahmani-Oskooee, M., & Saha, S. (2019). Exchange rate risk and commodity trade between U.S. and India: an asymmetry analysis. Journal of the Asia Pacific Economy, 0(0), 1–21. https://doi.org/10.1080/13547860.2019.1701307
Baker, S. R., Bloom, N., Davis, S. J., Kost, K., Sammon, M. C., & Viratyosin, T. (2020a). The Unprecedented Stock Market Impact of COVID-19. In Review of Corporate Finance Studies (Vol. 9, Issue April).
Baker, S. R., Bloom, N., Davis, S. J., Kost, K., Sammon, M., & Viratyosin, T. (2020b). The unprecedented stock market reaction to COVID-19. Review of Asset Pricing Studies, 10(4), 742–758. https://doi.org/10.1093/rapstu/raaa008
Baumöhl, E., Bouri, E., Hoang, T.-H.-V., Shahzad, S. J. H., & Výrost, T. (2020). From physical to financial contagion: the COVID-19 pandemic and increasing systemic risk among banks. In Econstor. Kiel, Hamburg: ZBW – Leibniz Information Centre for Economics. Retrieved from http://hdl.handle.net/10419/218944www.econstor.eu
Boëlle, P.-Y., Ansart, S., Cori, A., & Valleron, A.-J. (2011). Transmission parameters of the A/H1N1 (2009) influenza virus pandemic: a review. Influenza and Other Respiratory Viruses, 5(5), 306–316. https://doi.org/10.1111/j.1750-2659.2011.00234.x
Bora, Debakshi & Basistha, D. (2020). (PDF) The Outbreak of COVID-19 Pandemic and Its Impact on Stock Market Volatility: Evidence from a Worst-affected Economy. ResearchGate, December 2019, 1–23. https://doi.org/10.21203/rs.3.rs-57471/v1
Carletti, E., Oliviero, T., Pagano, M., Pelizzon, L., & Subrahmanyam, M. G. (2020). The COVID-19 Shock and Equity Shortfall: Firm-Level Evidence from Italy. The Review of Corporate Finance Studies, 9(3), 534–568. https://doi.org/10.1093/rcfs/cfaa014
Chandra, S., & Kassens-Noor, E. (2014). The evolution of pandemic influenza: evidence from India, 1918–19. BMC Infectious Diseases, 14(1), 510. https://doi.org/10.1186/1471-2334-14-510
Chaudhary, M., Sodani, P. R., & Das, S. (2020). Effect of COVID-19 on Economy in India: Some Reflections for Policy and Programme. Journal of Health Management, 22(2), 169–180. https://doi.org/10.1177/0972063420935541
Coefficient of Skewness. (2008). In The Concise Encyclopedia of Statistics (pp. 92–95). Springer New York. https://doi.org/10.1007/978-0-387-32833-1_64
Coibion, O., Gorodnichenko, Y., & Weber, M. (2020). The Cost of the Covid-19 Crisis: Lockdowns, Macroeconomic Expectations, and Consumer Spending. Retrieved from https://www.nber.org/papers/w27141
Covid-19 fallout: How the pandemic displaced millions of migrants - NEWS MAKERS News - Issue Date: Jan 11, 2021. (n.d.). Retrieved from https://www.indiatoday.in/magazine/news-makers/story/20210111-displaced-distressed-1755084-2021-01-03
Diebold, F. X., & Yilmaz, K. (2012). Better to give than to receive: Predictive directional measurement of volatility spillovers. International Journal of Forecasting, 28(1), 57–66. https://doi.org/10.1016/j.ijforecast.2011.02.006
Ding, D., Guan, C., Chan, C. M. L., & Liu, W. (2020). Building stock market resilience through digital transformation: using Google trends to analyze the impact of COVID-19 pandemic. Frontiers of Business Research in China, 14(1), 21. https://doi.org/10.1186/s11782-020-00089-z
Economics, D., & Series, W. P. (2014). Where Have All The Workers Gone? The Puzzle of Declining Labour Intensity in Organized Indian Manufacturing (35/2014; 2014, Issue 35). Retrieved from https://hummedia.manchester.ac.uk/institutes/gdi/publications/workingpapers/depp/depp-wp36.pdf
Flatten the Coronavirus Curve at a Lower Cost - WSJ. (n.d.). Retrieved from https://www.wsj.com/articles/flatten-the-coronavirus-curve-at-a-lower-cost-11585067354
Friedman, M. (1970). A Friedman doctrine - The Social Responsibility of Business Is to Increase Its Profits. New York Times Magazine, 6(Newspaper Article), 33,122-124. Retrieved from https://www.nytimes.com/1970/09/13/archives/a-friedman-doctrine-the-social-responsibility-of-business-is-to.html
Gabauer, D. (2020). Volatility impulse response analysis for DCC-GARCH models: The role of volatility transmission mechanisms. Journal of Forecasting, 39(5), 788–796. https://doi.org/10.1002/for.2648
Hall, M. (2020). Burning Planet: Climate Fires and Political Flame Wars Rage Press releases World Economic Forum. Retrieved from https://www.weforum.org/press/2020/01/burning-planet-climate-fires-and-political-flame-wars-rage
India-Measures in response to COVID-19 - KPMG Global. (n.d.). Retrieved from https://home.kpmg/xx/en/home/insights/2020/04/india-government-and-institution-measures-in-response-to-covid.html
India: unemployment rate due to COVID-19 | Statista. (n.d.). Retrieved from https://www.statista.com/statistics/1111487/coronavirus-impact-on-unemployment-rate/
Liew, V. K. S., & Puah, C.H. (2020). Chinese stock market sectoral indices performance in the time of novel coronavirus pandemic. 100414. https://doi.org/10.21203/rs.3.rs-29363/v1
Liu, H., Manzoor, A., Wang, C., Zhang, L., & Manzoor, Z. (2020). The COVID-19 Outbreak and Affected Countries Stock Markets Response. International Journal of Environmental Research and Public Health, 17(8), 2800. https://doi.org/10.3390/ijerph17082800
Liu, H. Y., Wang, Y., He, D., & Wang, C. (2020). Short term response of Chinese stock markets to the outbreak of COVID-19. Applied Economics, 52(53), 5859–5872. https://doi.org/10.1080/00036846.2020.1776837
Loginov, A., & Heywood, M. (2020). On the different impacts of fixed versus floating bid-ask spreads on an automated intraday stock trading. The North American Journal of Economics and Finance, 54, 101247. https://doi.org/10.1016/j.najef.2020.101247
Long, S., Zhang, M., Li, K., & Wu, S. (2021). Do the RMB exchange rate and global commodity prices have asymmetric or symmetric effects on China’s stock prices? Financial Innovation, 7(1). https://doi.org/10.1186/s40854-021-00262-0
Martini, M., Gazzaniga, V., Bragazzi, N. L., & Barberis, I. (2019). The Spanish Influenza Pandemic: a lesson from history 100 years after 1918. Journal of Preventive Medicine and Hygiene, 60(1), E64–E67. https://doi.org/10.15167/2421-4248/jpmh2019.60.1.1205
McWilliams, A., & Siegel, D. (2001). Corporate Social Responsibility: A Theory of the Firm Perspective. The Academy of Management Review, 26(1), 117. https://doi.org/10.2307/259398
Parkinson, M. (1980). The Extreme Value Method for Estimating the Variance of the Rate of Return. The Journal of Business, 53(1), 61–65. Retrieved from http://www.jstor.org/stable/2352357
Ramelli, S., & Wagner, A. F. (2020). Feverish stock price reactions to COVID-19. Review of Corporate Finance Studies, 9(3), 622–655. https://doi.org/10.1093/rcfs/cfaa012
Salisu, A. A., Sikiru, A. A., & Vo, X. V. (2020). Pandemics and the emerging stock markets. Borsa Istanbul Review, 20, S40–S48. https://doi.org/10.1016/j.bir.2020.11.004
Sehgal, S., Ahmad, W., & Deisting, F. (2015). An investigation of price discovery and volatility spillovers in India’s foreign exchange market. Journal of Economic Studies, 42(2), 261–284. https://doi.org/10.1108/JES-11-2012-0157
Taubenberger, J. K., & Morens, D. M. (2006). 1918 Influenza: the Mother of All Pandemics. Emerging Infectious Diseases, 12(1), 15–22. https://doi.org/10.3201/eid1209.05-0979
The Spanish flu (1918-20): The global impact of the largest influenza pandemic in history - Our World in Data. (n.d.). Retrieved from https://ourworldindata.org/spanish-flu-largest-influenza-pandemic-in-history
Xiao, X., & Huang, J. (2018). Dynamic connectedness of international crude oil prices: The Diebold-Yilmaz approach. Sustainability (Switzerland), 10(9). https://doi.org/10.3390/su10093298
Yousaf, I., & Ali, S. (2020). Discovering interlinkages between major cryptocurrencies using high-frequency data: new evidence from COVID-19 pandemic. Financial Innovation, 6(1), 1–18. https://doi.org/10.1186/s40854-020-00213-1
Zimmer, S. M., & Burke, D. S. (2009). Historical Perspective — Emergence of Influenza A (H1N1) Viruses. New England Journal of Medicine, 361(3), 279–285. https://doi.org/10.1056/NEJMra0904322
Published
2022-03-19
How to Cite
Tomar, K. S. (2022). THE ALTERED VOLATILITY SPILLOVER SEQUENCE UNDER COVID-19: INDIAN SECTORAL INDICES IMPACT DEIBOLD YILMAZ INDEX. Indian Journal of Finance and Banking, 9(1), 164-176. https://doi.org/10.46281/ijfb.v9i1.1660
Section
Research Paper/Theoretical Paper/Review Paper/Short Communication Paper
Copyright (c) 2022 Kunwar Sanjay Tomar
This work is licensed under a Creative Commons Attribution 4.0 International License.
