Examining causal relationship among stock market index, crude oil price, exchange rate amid COVID-19 era: an empirical evidence from Indian financial market using VAR model

Abstract

The year 2020, so far, has been relentlessly wreaking havoc on the very concept of life and work as we know them. This unprecedented event has been unfolding multiple worst-case scenarios on all fronts of our society and has eclipsed almost every other natural disasters of the modern world and pushing humanity on the verge of tipping point. Up to now, more than 29 million people have been infected and more than 1000 thousand have lost their lives because of COVID-19. So far, this epidemic has not only taken human lives but also snatched the livelihood of millions of people worldwide. Because of this epidemic, the world has been experiencing a kind of regressive mindset, where countries are looking inward, and all kinds of political, social, and economic relations are in a very confused state on account of this ongoing assault on them. Consequently, this epidemic has triggered a high level of skepticism in investors about the certainty of the rapid healing of the social and economic condition which is hindering the quick and healthy recovery of financial markets in most of the pandemic ridden countries of the world. The purpose of this study was to examine the causal relationship among various factors such as crude oils price, exchange rate, and stock market performance during Covid-19 in the context of financial market performance in India. Several methodologies have been applied during this study such Johansen co-integration test, vector autoregression model, and Granger causality test. The results have supported a significant causality among crude oil prices and the exchange rate on stock market performance.