Sub-prime Crisis or COVID-19: A Comparative Analysis of Volatility in Indian Banking Sectoral Indices
the Dow Theory (Brown et
al., 1998), there can be mainly three types of movements in a stock market:
primary, secondary and random wiggles. The markets may move in their tandem,
and it may be challenging to explain trends (Kendall
& Hill, 1953). The velocity with which a specific market can discount
any information may decide the impact of such information and its spillover (Malkiel
& Fama, 1970).
The interdependence of global markets has been on the rise due to increased integration in countries’ stock markets. An event related to a positive/negative nature in one nation may create ripple effects in some other country. The markets in the USA, Japan, China, France, Dubai and Germany are cointegrated using Johansen cointegration techniques in the long run (Bhatia & Ramasubramanian, 2019). The integrated markets shall be impacted by an unusual event taking place in any of the interlinked countries. The volatility spillover has been studied in various forms for different markets.
causality results indicated that Sensex has been influenced by developed market
indices. Therefore, a robust global contagion has been observed for Indian
markets from worldwide indices (Sarkar et
al., 2009). There has been a substantial reduction in the fractional
differencing parameters on testing the Kuala Lumpur Composite Index in
structural breaks due to the Asian financial crisis and currency crisis (Cheong,
of country-specific macroeconomic shocks tends to slow down with nations’
development, and thus developed countries may have a lesser impact (Koren
& Tenreyro, 2007). GARCH (1,1) model depicted that past volatility
influenced markets in the Gulf region more than the shocks at the macro level.
However, it had not been witnessed for Qatar markets (Hammoudeh
et al., 2009).
from demonetization existed for 12 sectoral indices post 3 months of its
announcement in 2016–2017 (Singh,
2017). The sectoral indices inclusive of BSE Bankex have been found to be
enormously efficient in discounting market information from time to time (Ramkumar
et al., 2012).
been various global shocks that tampered many nations for a short- or a
long-run period. Two such relevant events that may have caused such
disturbances have been US sub-prime mortgage crisis in September 2008 and the
recent COVID-19 outbreak in China in December 2019.
above events have been studied in the present study to investigate volatility
persistence for banking sectoral indices in Indian markets. The scope of
volatility spillover from various national and international events has been
analysed using multiple models and techniques by researchers.
present study has emphasized adding to the literature of such related work by
comparing the impact of two different global shocks. The banking indices are
categorized explicitly into the main index, and the other two sectoral indices
have not been examined earlier in any study.
present work contributes a newer direction in events and their impact on
sectoral indices. This study may be relevant from both investors’ and portfolio
The rest of
the article is divided into seven sections: the second section elaborates
literature review, the third section explains objectives, the fourth section
presents the hypotheses, the fifth section documents data and methodology, the
sixth section presents the findings, and the seventh section concludes the
results. The eighth section throws light on the scope of future research.
Intrigued? Click here to read the full article!