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Dynamic correlations and volatility spillovers between stock price and exchange rate in BRIICS economies: evidence from the COVID-19 outbreak period

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  • Karan Rai
  • Bhavesh Garg

Abstract

This paper examines the impact of COVID-19 pandemic on dynamic correlations and volatility spillovers between stock prices and exchange rates in BRIICS economies. Using volatility modelling, we demonstrate significant negative dynamic correlations and volatility spillovers between stock and exchange returns in most of the BRIICS economies. Further, the relationship strengthened during the initial days of lockdowns. Our results pass the sensitivity analysis, and hence robust. Overall, our findings indicate that there have been significant risk transfers between the two markets, during the COVID-19 outbreak, which led to decline in domestic stock returns and subsequent capital outflows thereby increasing the exchange rates.

Suggested Citation

  • Karan Rai & Bhavesh Garg, 2022. "Dynamic correlations and volatility spillovers between stock price and exchange rate in BRIICS economies: evidence from the COVID-19 outbreak period," Applied Economics Letters, Taylor & Francis Journals, vol. 29(8), pages 738-745, May.
    • Handle: RePEc:taf:apeclt:v:29:y:2022:i:8:p:738-745
    DOI: 10.1080/13504851.2021.1884835
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    Cited by:

    1. Khyati Kathuria & Nand Kumar, 2022. "Pandemic‐induced fear and government policy response as a measure of uncertainty in the foreign exchange market: Evidence from (a)symmetric wild bootstrap likelihood ratio test," Pacific Economic Review, Wiley Blackwell, vol. 27(4), pages 361-379, October.
    2. Prabheesh, K.P. & Padhan, Rakesh & Bhat, Javed Ahmad, 2024. "Do financial markets react to emerging economies’ asset purchase program? Evidence from the COVID-19 pandemic period," Journal of Asian Economics, Elsevier, vol. 90(C).
    3. Shah, Sayar Ahmad & Garg, Bhavesh, 2023. "Identifying efficient policy mix under different targeting regimes: A tale of two crises," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 975-994.
    4. Wei Wang & Haibo Wang, 2024. "Interconnected Markets: Exploring the Dynamic Relationship Between BRICS Stock Markets and Cryptocurrency," Papers 2406.07641, arXiv.org.
    5. Emre BULUT & Ahmed İhsan ŞİMŞEK, 2023. "The Relationship Between the Stock Market Volatility, Liquidity, Exchange Rate Return, and Stock Return During the COVID-19 Period: The case of the BIST 100 Index," Bingol University Journal of Economics and Administrative Sciences, Bingol University, Faculty of Economics and Administrative Sciences, vol. 7(1), pages 121-135, June.
    6. Terver Kumeka & Oluwatosin Adeniyi, 2023. "Stock markets response to contagious disease: Evidence on the impact of COVID‐19 in the three worst hit African economies," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 4476-4499, October.
    7. Chowdhury, Kushal Banik & Garg, Bhavesh, 2022. "Has COVID-19 intensified the oil price–exchange rate nexus?," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 280-298.
    8. Zhou, Wei & Chen, Yan & Chen, Jin, 2024. "Dynamic volatility spillover and market emergency: Matching and forecasting," The North American Journal of Economics and Finance, Elsevier, vol. 71(C).
    9. Oktay Ozkan & Salah Abosedra & Arshian Sharif & Andrew Adewale Alola, 2024. "Dynamic volatility among fossil energy, clean energy and major assets: evidence from the novel DCC-GARCH," Economic Change and Restructuring, Springer, vol. 57(3), pages 1-19, June.

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