Volatility Integration and Dynamic Connectedness Among the Indian Stock Market, Gold Prices, Oil Prices, Exchange Rates and Natural Gas

Agrawal Pravin Kumar (), Kumar Mohit, Bajpai Mansi, Mishra Pallavi, Kumar Prashant and Rana Gagan
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Agrawal Pravin Kumar: Chhatrapati Shahu Ji Maharaj University, Kanpur, Department of Business Management, India
Kumar Mohit: Chhatrapati Shahu Ji Maharaj University, Kanpur, Department of Business Management, India
Bajpai Mansi: Chhatrapati Shahu Ji Maharaj University, Kanpur, Department of Business Management, India
Mishra Pallavi: Chhatrapati Shahu Ji Maharaj University, Kanpur, Department of Business Management, India
Kumar Prashant: Study Hall college, Affiliated to University of Lucknow, Lucknow, Department of Business Management, India
Rana Gagan: Chhatrapati Shahu Ji Maharaj University, Kanpur, Department of Business Management, India

Economics, 2025, vol. 13, issue 2, 245-263

Abstract: The main goal of this study is to look at how the Indian stock market benchmark index Nifty 50, the price of gold, the price of crude oil, the USD/INR exchange rate, and natural gas are all dynamically linked to each other. Data is collected on a daily basis from January 01, 2009 to March 31, 2023. We used the DCC GARCH and Diebold & Yilmaz (2012) connectedness frameworks, along with Granger causality, to find the short- and long-term volatility transmissions between the variables. There is no volatility spillover that exists between the Nifty 50 and gold price, the Nifty 50 and crude oil, the Nifty 50 and natural gas, the gold price and exchange rate, the gold and natural gas, the exchange rate and crude oil, and the exchange rate and natural gas in the short run. The DCC GARCH findings indicate that portfolio diversification will benefit investors in the short run in the aforementioned pairs. However, a significant volatility spillover relationship exists in the long run, which eliminates the opportunity for portfolio diversification. Natural gas is self-sufficient, and it is least affected by the volatility of other markets. We found significant dynamic interconnectedness between the Nifty 50, the exchange rate, and the Brent Price. The result of Diebold & Yilmaz connectedness suggests that while making investing decisions, investors should take into account the volatility of the Nifty 50, gold, and exchange rates. The research findings have remarkable relevance to investors and policymakers for risk management, portfolio optimization, and diversification and to better understand the market dynamics. Analysis also provides prominent indicators for policymakers regarding monetary and fiscal policies, considering the impact that exchange rates, gold, and crude oil exert on the stock market.

Keywords: Volatility Spillover; DCC GARCH; Diebold and Yilmaz; Granger Causality; Gold Price; Crude oil; Exchange Rate (search for similar items in EconPapers)
JEL-codes: G10 G15 Q40 Q41 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:econom:v:13:y:2025:i:2:p:245-263:n:1012

DOI: 10.2478/eoik-2025-0039

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