Is Covid-19 a Black Swan Event? Evidence from the National Stock Exchange of India

Abstract

This paper examines whether Covid-19 proved to be a Black Swan event for the Indian derivatives market. The second wave of the pandemic in India affected the determinants of options pricing. However, the extant literature does not examine the impact of the pandemic on the Indian derivatives market. The international evidence is indecisive on whether Covid-19 was a Black Swan event. The present study examines the effect of the pandemic shock on the bid-ask spreads and prices of options listed on the National Stock Exchange of India. The analysis is based on the daily equity options data of Nifty index options and a sample of six equity options during 2019-20. The key finding of the study is that for the Indian options market, Covid-19 proved to be a short-term shock of limited impact on the sectoral level and hence cannot be considered a Black Swan event. This finding is consistent with Taleb’s view on the pandemic.