Abstract
The impact of COVID-19, due to the wide-spread demand and supply destruction and downward movement of crude oil prices is of concern for all those connected with the oil and gas industry. In this study, an attempt has been made to estimate the price volatility of crude oil and natural gas listed on Multi Commodity Exchange of India (MCX). We measured the leverage effect of COVID-19 on price volatility of crude oil and natural gas by using the daily prices of crude oil and natural gas from 1st May 2017 to 30th April 2020. The findings of the study reveal that there is a presence of leverage effect of COVID-19 on the price volatility of crude oil. However, this leverage effect is not present on the price volatility of natural gas. The findings of the study will help investors to develop investment strategies and to the policymakers to formulate appropriate policies to overcome or minimise the impact of COVID-19. The forecasting graphs of crude oil prices indicate that there is a possibility that price volatility will be higher in the future. However, it is difficult to forecast the expected price volatility of natural gas for the future because the price volatility graph is extremely fluctuating.Keywords: COVID-19, Asymmetric Volatility, Leverage Effect, Crude Oil, Natural Gas, MCX Limited. JEL Classifications: G15; G20; G21; G22; G23DOI: https://doi.org/10.32479/ijeep.10047
Highlights
The outbreak of COVID–19, which was started in the Wuhan city of China during November 2019 has been declared as a global pandemic by the World Health Organisation (WHO) on March 11, 2020
This study focuses on measuring the impact and the leverage effect of corona virus disease 2019 (COVID-19) on the price volatility crude oil and natural gas listed on multi commodity exchange of India (MCX), India by using exponential GARCH (EGARCH) model
The results of the study indicate that there is a presence of asymmetric volatility in crude oil prices due to the spread of COVID-19
Summary
The outbreak of COVID–19, which was started in the Wuhan city of China during November 2019 has been declared as a global pandemic by the World Health Organisation (WHO) on March 11, 2020. The modern methods include many algorithmic functions for modelling volatility like ARCH, GARCH, EGARCH, TARCH etc These volatility models are used to describe a changing, possibly volatile variance and to predict the volatility of a time series data (Iqbal and Mallikarjunappa, 2010). Et al.: The Impact of COVID-19 on Price Volatility of Crude Oil and Natural Gas Listed on Multi Commodity Exchange of India “The ARCH (autoregressive conditional heteroscedasticity) model proposes that the variance of residuals regressed on the squared error terms from the periods of past. The EGARCH Model is appropriate for capturing the leverage effect of COVID-19 on the price volatility of two most traded energy commodities i.e. crude oil and natural gas
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