MEASURING LEVERAGE EFFECT OF COVID 19 ON STOCK PRICE VOLATILITY OF ENERGY COMPANIES USING HIGH FREQUENCY DATA

Bharat Kumar Meher,Deebom Zorle Dum,Mathew Thomas Gil,Iqbal Thonse Hawaldar

doi:10.32479/ijeep.11866

Abstract

The uprising of the pandemic COVID-19 has paralysed the whole Indian economy, and as a result the Indian stock market is severely affected too. The widely inclusive lockdown articulated on 24th March 2020 by the Prime Minister as a careful step against COVID-19, trailed by ensuing augmentations, has brought about a halt of all financial movement in the country. The objective of the study is to frame different asymmetric price volatility models for Selected Companies under Energy Sector using 1-minute closing price from 15th October 2019 to 15th May 2020 to captivate the leverage effect of the pandemic. The asymmetric terms in the selected asymmetric models are providing sufficient proof that the stock price volatility of three companies out of six under NIFTY Energy i.e., BPCL, Power grid and Indian Oil Corporation are unfavourably influenced by the pandemic. The forecasting graphs for volatility of four companies have been plotted, reveals that there is consistency in the stock price returns of all these four companies but the graph of predicted variance of Indian Oil Corporation reveals that the volatility has been fluctuating drastically with many high peak variances or fluctuations during the two days of forecasted period.Keywords: Asymmetric Volatility, EGARCH, GJR-GARCH, TGARCH, High frequency DataJEL Classifications: C40, C530, C550, C580, G110, G120, G170DOI: https://doi.org/10.32479/ijeep.11866

Highlights

The pandemic, COVID-19, has jostled the global economy into a recession, which means the economy starts dwindling and growth trammels (Meher et al, 2021); (Pinto et al, 2020)
After visualising the graphs of log returns of six companies in Figure 1, it can be said that there is existence of volatility clustering in the data of all companies i.e., huge variations in log returns followed huge variations in log returns and small variations in log returns followed small variations in log returns. It is can be observed during the month of March 2020, there were huge variations in the returns of the stocks of the selected companies. These large variations during the month of March 2020 are a clear indication that there is an existence of leverage effect of the pandemic on the stock prices of selected Energy Companies and asymmetric GARCH models would be appropriate in modelling the volatility of stock prices of these companies
It has been found that out of top six companies under NIFTY Energy, the data related to the stock price of four companies i.e., Oil and Natural Gas Corporation Limited (ONGC), Power grid, Bharat Petroleum Corporation Limited (BPCL) and Indian Oil Corporation have the asymmetries and asymmetric models can be formed for these four companies

Summary

Introduction

The pandemic, COVID-19, has jostled the global economy into a recession, which means the economy starts dwindling and growth trammels (Meher et al, 2021); (Pinto et al, 2020). If the coronavirus is infectious and migrations exist, the virus can affect many economies of the world and their stock markets simultaneously (Okorie and Lin, 2020). The uprising of the pandemic COVID-19 has paralysed the whole Indian economy, and as a result the Indian stock market is severely affected too. Indian Financial Market in India is witnessing sharp volatility at present because of the aftermath in worldwide global markets. The fall is in accordance with the worldwide benchmark indices as the domestic market usually tracks the major global indices and the high volatility is likely to exist soon (Raja Ram, 2020). The widely inclusive lockdown articulated on 24th March 2020 by the Prime Minister as a careful step against COVID-19, trailed by ensuing augmentations, has brought about a halt of all financial movement in the country (Meher et al, 2020)

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