Comovement of Fear Index, Stock Returns, Brent Oil Prices in BRIC Countries: The Case of COVID-19

Abstract

The study investigates long-run and short-run cointegrating relationship between stock market returns, fear index (VIX), brent crude oil prices and growth in deaths due to the COVID-19 pandemic for BRIC countries using daily data from 23 January 2020 to 24 August 2020 using Autoregressive Distributed Lag (ARDL) model. CUSUM test and serial correlation test estimates point towards the robustness of the model used. The evidence reveals that for India and Brazil, with the outbreak of COVID-19, decrease in crude oil prices and increase in volatility index, the stock returns started declining in the short run, but the impact has declined and the stock returns have regained in the long run. For China, due to the outbreak of COVID-19 and increase in fear index, stock returns declined in the short run, but the Chinese economy has recovered well due to a strong industrial and services sector. For Russia, increase in deaths due to COVID and decline in oil prices has impacted the stock returns in the long- and short run. Due to a decline of 53% for crude oil prices from January 2020 to May 2020, the Russian economy would face the consequences in the long run as well. The results suggest that though BRIC countries were impacted by growth in COVID-19 deaths, but the recovery trajectory and stability has resumed for all countries except Russia. Results of Granger Causality indicate a bidirectional causality between VIX and stock returns for the Indian market.