Indian Journal of Finance

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Financial Contagion between Crude Oil, Gold, and Equity Sectors in India during COVID


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1 FORE School of Management, Adhitam Kendra, B-18, Qutub Institutional Area, New Delhi - 110 016, India

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Purpose : This study examined the financial contagion between crude oil and gold prices with the equity prices of different sectors in the Indian equity market during the recent COVID crisis.

Design/Methodology/Approach : Dynamic conditional correlation (DCC) GARCH model was employed to analyze the behavior of time-varying conditional correlation during the time of COVID-19. For examining the financial contagion, regression analysis was performed on the dynamic conditional correlation and the conditional volatilities of the different markets.

Findings : The DCC model showed a sharp increase in correlations between markets during the COVID19 wave. It also suggested the presence of financial contagion between the crude oil and gold markets and the different equity sectors. It also indicated that the COVID-19 effect on the conditional correlation between gold and equity sectors was temporary. In contrast, it increased the correlation between crude oil and the equity sectors.

Practical Implications : The findings of this study have implications for portfolio diversification methods because higher correlations lower the benefits of diversification.

Originality : This study examined the financial contagion during COVID-19 from crude oil and gold to equity sectors. Not all sectors react in the same way to changes in the prices of these commodities, and some may witness less impact compared to others during the crisis period, which makes it interesting for the study.


Keywords

COVID-19, DCC GARCH, Financial Contagion, Indian Equity Markets, Crude Oil, Gold.

JELClassification Codes : C32, G11,G14

Paper Submission Date : January 24, 2023 ; Paper sent back for Revision : February 18, 2023 ; Paper Acceptance Date : March 5, 2023 ; Paper Published Online : March 15, 2023

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  • Financial Contagion between Crude Oil, Gold, and Equity Sectors in India during COVID

Abstract Views: 161  |  PDF Views: 0

Authors

Vikas Pandey
FORE School of Management, Adhitam Kendra, B-18, Qutub Institutional Area, New Delhi - 110 016, India

Abstract


Purpose : This study examined the financial contagion between crude oil and gold prices with the equity prices of different sectors in the Indian equity market during the recent COVID crisis.

Design/Methodology/Approach : Dynamic conditional correlation (DCC) GARCH model was employed to analyze the behavior of time-varying conditional correlation during the time of COVID-19. For examining the financial contagion, regression analysis was performed on the dynamic conditional correlation and the conditional volatilities of the different markets.

Findings : The DCC model showed a sharp increase in correlations between markets during the COVID19 wave. It also suggested the presence of financial contagion between the crude oil and gold markets and the different equity sectors. It also indicated that the COVID-19 effect on the conditional correlation between gold and equity sectors was temporary. In contrast, it increased the correlation between crude oil and the equity sectors.

Practical Implications : The findings of this study have implications for portfolio diversification methods because higher correlations lower the benefits of diversification.

Originality : This study examined the financial contagion during COVID-19 from crude oil and gold to equity sectors. Not all sectors react in the same way to changes in the prices of these commodities, and some may witness less impact compared to others during the crisis period, which makes it interesting for the study.


Keywords


COVID-19, DCC GARCH, Financial Contagion, Indian Equity Markets, Crude Oil, Gold.

JELClassification Codes : C32, G11,G14

Paper Submission Date : January 24, 2023 ; Paper sent back for Revision : February 18, 2023 ; Paper Acceptance Date : March 5, 2023 ; Paper Published Online : March 15, 2023


References





DOI: https://doi.org/10.17010/ijf%2F2023%2Fv17i3%2F172670