Abstract
The paper intends to re-examine the relationship between India’s Implied Volatility Index (IVIX) and Nifty 50 Returns during this COVID-19 pandemic. The study results are important for two reasons, one is to understand whether Indian VIX is fulfilling the purpose of measuring the near future volatility of Nifty 50 during this pandemic, and secondly, it reports the impact of COVID-19 on the investors’ perceptions about the returns and its volatility. The study results documented that the Nifty return and IVIX are moving independently during the COVID-19 pandemic and there is no association between market size and the market move. The one period lagged Nifty returns have a significant influence on the future market volatility. The combined impact of negative and positive Nifty returns on IVIX is not significant during the COVID-19 period. This implies that the Indian investors are not much worried about the fluctuation in the market price or size of the market during the COVID-19 pandemic period. The investors might be taking the market decline as an opportunity to invest and market rise as an opportunity to sell the stocks. Indian investors are much focused on the fundamentals than the market movements during this pandemic. The study results are important for the fund managers, policymakers, and analysts to understand the dynamics of emerging market volatility and the trading behavior of Indian investors.
Highlights
Unforeseen events like global recessions, terrorist attacks, dot-com bubble and pandemics will cause panic among the investors and it leads to large selling pressure, and increases market volatility
Summary and Conclusion The study employed a multiple regression model suggested by Fleming et al (1995) to understand the intertemporal relationship between Nifty returns and Implied Volatility Index (IVIX); the study presented the analysis during the COVID-19 period
The lagged Nifty returns for two periods and one period lagged IVIX values are positively significant with IVIX change
Summary
Unforeseen events like global recessions, terrorist attacks, dot-com bubble and pandemics will cause panic among the investors and it leads to large selling pressure, and increases market volatility. The literature documented on the panic selling and due to black swan events like SARS Outbreak and terrorist attacks (Chen & Siems, 2004; Chen, Jang, & Kim, 2007; Papakyriakou, Sakkas, & Taoushianis, 2019). Since this COVID-19 outbreak, many articles have been published on the impact of COVID-19 on people‟s health, businesses, and economies. The study results are important for us to understand the impact of individuals‟ perceptions on the market fluctuations and its future volatility during this COVID-19 pandemic period. The purpose of IVIX is to depict the volatility of in the near future
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