Abstract
The spread of COVID-19 has caused severe damage to human lives and the global economy. The stock markets around the world have plummeted to their lowest levels since the 2008 Global Financial Crisis. This paper attempts to examine the joint dynamics of gold and stock market returns during unprecedented times of health and financial shock due to COVID-19 between January 2020 and May 2020 using granger test, ARMA model, and symmetric and asymmetric GARCH models to improve the understanding of the microstructure of investment scenario in India. The period considered in the study helps to evaluate the impact of lockdown due to coronavirus on Gold and Nifty index return. Results based on GARCH and E-GARCH models indicate a significant negative impact of gold on nifty returns during the sample period. The results also indicate investors' perception of gold as a safe-haven asset during periods of elevated uncertainty. Thus, the study is expected to enhance the understanding of market asymmetry, the behavior of investors towards these avenues of investments, and information processing.
Highlights
The novel coronavirus (COVID-19), which emerged in Wuhan City, Hubei Province of China, spread to other countries over time and was declared a global epidemic by the World Health Organization (WHO) on March 11, 2020
These findings inevitably suggest that the gold price contains some significant information to forecast Nifty return
As significant asymmetry is observed in the returns of the Nifty index, it would be more informative if we examine the gold and Nifty returns relationship through EGARCH (1,1) model to take into account the impact of good and bad news on the volatility knowing the fact that both types of news have different kinds of effect on the market
Summary
The novel coronavirus (COVID-19), which emerged in Wuhan City, Hubei Province of China, spread to other countries over time and was declared a global epidemic by the World Health Organization (WHO) on March 11, 2020. The COVID-19 outbreak is an international pandemic that has taken the world by storm (Yan et al, 2020). The coronavirus has affected 219 countries and territories around the world (WHO, 2020). COVID - 19 has impacted all financial markets worldwide; the share prices trend dropped significantly and continuously (Sansa, 2020). Curfews were imposed, workplaces closed, production decreased, shopping stopped, except for basic supplies. COVID-19 endangered human health as well as increased risk perception in financial markets. Large decreases occurred in stock markets in a short time, companies lost value, and stock prices dropped
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