EFFECT OF VOLATILITY SPILLOVER BETWEEN THE FOREX MARKET AND INDIAN STOCK MARKET

The outbreak of COVID-19 has caused an unprecedented shock to the Indian economy. In the backdrop of the prevailing pandemic, this paper considers five Asian countries’ currency exchange values and analyses spillover effect of price and volatility against USD and Indian stock market. The duration of the study is for seven years starting from 2016 to 2022; the tool used is bi-variate asymmetric BEKK-GARCH model. The mean, volatility and shock spillover from the currency to the capital markets were studied. Empirical results reveal that there majorly exists a bidirectional spillover between the two markets. It is observed that relation between variance spread from capital market and foreign exchange is not symmetric. This indicates that there was higher volatility caused due to negative shocks when compared to positive shocks. High volatility was witnessed on spillovers as a result of the prevailing pandemic, this reflects that the tentative ‘contagion’ effect that enhances the volatility and intensifies the effect on the financial market.