Assessment of Volatility Contagion Effect Between Major Financial Markets During COVID-19 Pandemic Catastrophes

Abstract

Across the globe, the havoc of the pandemic known to be a black swan event has brought miseries, deaths, uncertainty, loss of lives and jobs holding the humanity in a state of despair. The financial markets have been equally hit by the pandemic due to on-going uncertainty and hopelessness among the masses. The aim of this study is to examine the volatility contagion and dynamic conditional correlations between eight stock indices during the gloomy period to validate that there is a scope for revisiting the investment portfolio, create natural hedge in the investment portfolio by using exponential generalised autoregressive conditional heteroscedasticity (EGARCH) and dynamic conditional correlation generalised autoregressive conditional heteroscedasticity (DCC-GARCH) approach. We conducted an in-depth analysis of capturing volatility among stock indices ranging from tracking the volatility followed by estimating persistence and multivariate volatility contagion of major stock indices of developed and developing economies during turbulent times of the pandemic when the globe was reeling under the taxing consequences of the first and second wave of COVID-19. There are very few studies that have conducted an in-depth analysis of capturing volatility of stock indices ranging from tracking the asymmetric volatility followed by estimating persistence and multivariate volatility contagion of major stock indices of developed and developing economies during turbulent times of the pandemic when the globe was reeling under the taxing consequences of the first and second wave of COVID-19.