Second Moment Spillover Across Stock and Indian Forex Market During Covid-19 Pandemic

Abstract

This paper explored the second moment spillover across stock market (domestic & foreign) and Indian Foreign Exchange market (INR/USD, INR/GBP & INR/ JPY) with three data frames labelled: Full Period (April 2, 2014, to March 31, 2021), Pre-Covid Period (April 2, 2014, to January 29, 2020) & Post-Covid Period (January 20, 2020, to March 31, 2021) by deploying Diebold & Yilmaz (2012) method. The empirical results insinuate that there is low connectedness across foreign (S&P 500; FTSE 100) and Indian Forex market except in case of Nikkei 225 which disappear in pre-covid period but inflate in post-covid period with moderate connectedness. Similarly, low connectedness across domestic stock market & Indian Forex market is experienced except in case of INR/JPY rate. Furthermore, in the context of own inducement, each series has shown high spillover which gradually decrease in post-covid period but in contrast, inducement from stock to forex market has increased except in case of CNX Nifty & INR/GBP. This empirical evidence expounds the presence of contagion effect across both the markets.