An empirical investigation of the impact of spillover dynamics from crude to NSE Nifty Index during and prior to the COVID-19 pandemic period

Rakesh Shahani () and Riya Paliwal
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Rakesh Shahani: Dr. Bhim Rao Ambedkar College (University of Delhi)
Riya Paliwal: Dr. Bhim Rao Ambedkar College (University of Delhi)

SN Business & Economics, 2023, vol. 3, issue 8, 1-21

Abstract: Abstract The study examines whether crude has any impact on India’s Nifty Stock Index by taking daily closing prices for the period Dec 31, 2015–Dec 31, 2020. An important aspect is examining the crude’s impact on Stock Index during the COVID-19 period. Different hypothesis have been established, including negative contemporary relation, asymmetric impact, and spillover representing transmission of volatility. Further transmission of shocks from crude to stock index has been studied using variance decomposition and impulse response function. The study results failed to establish negative as well as asymmetric relation between crude and stocks; however, short run volatility spillover was visible. Dummy variable representing COVID-19 period was significant showing a significant spillover during this period. The impact of unit shock in crude on stocks continued only till day 4 with no further changes beyond day 4. It was concluded that crude did not appear to impact Indian Stocks, the way it was seen impacting stocks of developed markets giving an opportunity to investors to benefit from holding both assets in their portfolio as a part of a good diversification and asset allocation strategy. The crude, however, witnessed heightened volatility during the COVID-19 pandemic, thus making it vulnerable to sharp swings like stock markets. These findings could be useful to policy makers to enable them to fine tune certain policy decisions on financial matters. The investors too could strategically reshuffle their portfolios after considering the dynamics of volatility spillover from crude to Indian Stocks.

Date: 2023
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DOI: 10.1007/s43546-023-00517-1

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