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COVID-19 related stringencies and financial market volatility: sectoral evidence from India

Pragati Priya (Department of Economics, Indian Institute of Management Lucknow, Lucknow, India)
Chandan Sharma (Department of Economics, Indian Institute of Management Lucknow, Lucknow, India)

Journal of Financial Economic Policy

ISSN: 1757-6385

Article publication date: 20 December 2022

59

Abstract

Purpose

This study aims to examine the impact of the stringency of COVID-19 protocols on the volatility of sectoral indices during the period 03:2020–05:2021. Specifically, this study investigates the role of economic disturbances on sectoral volatility by applying a range of conditional volatility techniques.

Design/methodology/approach

For this analysis, two approaches were adopted. The first approach considers COVID stringency as a factor in the conditional variance equation of sectoral indices. In contrast, the second approach considers the stringency indicator as a possible determinant of their estimated conditional volatility.

Findings

Results show that the stringency of the protocols throughout the pandemic phase led to an instantaneous spike followed by a gradual decrease in estimated volatility of all the sectoral indices except pharma and health care. Specific sectors such as bank, FMCG, consumer durables, financial services, IT, media and private banks respond to protocols expeditiously compared to other sectors.

Originality/value

The key contribution of this study to the existing literature is the innovative approach. The inclusion of the COVID stringency index as a regressor in the variance equation of the conditional volatility techniques was a distinctive approach for assessing the volatility dynamics with the stringency of COVID protocols. Furthermore, this study also adopts an alternative approach that estimates the conditional volatility of the indices and then tests the effect of the stringencies on estimated volatility in a regression framework.

Keywords

Acknowledgements

The authors are grateful to the editor and two anonymous reviewers for their insightful and valuable comments and suggestions, which have significantly enhanced the quality of their work. All errors are of authors.

Citation

Priya, P. and Sharma, C. (2022), "COVID-19 related stringencies and financial market volatility: sectoral evidence from India", Journal of Financial Economic Policy, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JFEP-05-2022-0136

Publisher

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Emerald Publishing Limited

Copyright © 2022, Emerald Publishing Limited

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