Effect of Crude Oil and Exchange Rate Volatility on Nifty 50 during Crisis Period: Evidence from India
Keywords:
Volatility, Crude oil, USD/INR, Nifty 50, GARCH (1, 1) and Leverage effectAbstract
The uncertainty in financial markets influence the market participants to reallocate their capital among stock, commodities (crude oil) and Forex (dollar) market. Understanding of stock market during major crisis of crude oil, Exchange rate would help the market participants. Purpose: The study aims to investigate the behaviour of Indian stock market during the crude oil and currency (USD/INR) crisis periods. The work extensively covers daily returns of Crude oil, USD/INR rate and Nifty50 during time frame of the crisis period. Methodology: The study employed Garch (1, 1) and E-Garch models to analyse the effect of volatility of crude oil and USD/INR Exchange rates returns on Nifty 50 during major crude oil and exchange rates crisis period. Findings: GARCH (1, 1) model confirmed the volatility of USD/INR rates during 2013 exchange rate depreciation crisis and its influence on nifty50. Further, it’s found no influence of US Fed Reserve hike crisis on nifty50. During both the crude oil crisis it is confirmed the influence of crude oil returns volatility on nifty 50. The study examined the leverage effect by using E-Garch model. Overall, the study found that the presence of leverage effect only during 2010s Oil Glut crisis. The result signals that any negative shocks will increase the volatility of Nifty 50 more than positive shocks during Oil Glut crisis. Implications: The study implies that any raise in crude oil and USD/INR rates can greatly influence the volatility in Indian stock market. Originality: In majority of studies reported on one single crisis and for only one time period was examined using different tools for analysis. This paper covers all the crisis of crude oil and USD/INR rates within time frame of 2010 to 2020 which was undiscovered area of research in India.
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