Has Covid-19 Infected Indian Stock Market?

An Insight with Respect to NSE

Dippi Verma*, Praveen Kumar Sinha** and Lakshmi S R***

The outbreak of Covid-19 is an unprecedented shock to the global economy. Covid-19 which has spread
across the world started from Wuhan, China. Though the spread is high in USA and Europe, India
is also witnessing a sharp increase in Covid-19 cases. In this context, the global lockdown, worldwide
economic downturn and disruption in demand and supply are likely to bring inevitable financial crisis
and slowdown. The sentiment of stock markets across the world is also gloomy. This is reflected in
the frequent crashes of the stock markets in different parts of the world. However, the impact-study
of Covid-19 on financial markets is still in the nascent stage. The objective of this paper is to investigate
the impact of Covid-19 cases on the Indian stock markets, especially NSE, to observe the level of
volatilities on a day-to-day basis or on a weekly basis. The data considered for the given study is from
May 16, 2019 to May 13, 2020. The analysis is based on GARCH model, which suggests that the
rise in the number of Covid cases does not have any impact on stock market returns. However, it
is found that there is evidence of positive impact on the conditional variance of the Nifty 50 returns.
The model is tested for autocorrelation and ARCH effect in residual by using correlogram test and
ARCH-LM test.

Introduction
The outbreak of Covid-19 is an unprecedented shock to the global economy. Even though
Covid-19 originated from Wuhan, China, the impact is largely felt on the US and Europe.
The number of cases and the number of deaths in these countries are in millions. Even the
Asian countries are in the list of top ten highly affected by Covid-19. At the same time, India
is also witnessing a sharp increase in Covid-19 cases, and the number runs into lakhs. To
prevent the spread of pandemic, the global economies have suspended the trade ties. A
majority of economies faced complete or partial lockdown. The global disorder due to prolonged
global lockdown has created economic downturn and disruption. Slowdown in demand and
supply is likely to bring inevitable financial crisis and disruptions in the financial market.
In a developing economy, the success is measured by the level of income and high percentage
of GDP growth. India being a developing nation has achieved tremendously post liberalization.
India is one of the fastest growing nations. But the Covid-19 crisis has brought the economy
to a standstill. A study estimates that India and China will experience recession for one year.
* Associate Professor, T John College, Bengaluru, Karnataka, India; and is the corresponding author.
E-mail: dippiverma@gmail.com
* * Associate Professor, Dayanand Sagar Academy of Technology, Bengaluru, Karnataka, India.
E-mail: praveensinha07@gmail.com
*** HOD, Department of Management Studies, T John College, Bengaluru, Karnataka, India.
E-mail: lakshmimadhu2005@gmail.com

© 2020
Has IUP. All
Covid-19 Rights Indian
Infected Reserved.
Stock Market? An Insight with Respect to NSE 7
However, the question is: Will the economy be the same post Covid-19? Investment in the
financial markets and expectation of daily gains have led to many sleepless nights.
Sentiment of stock markets across the world is also gloomy. This is reflected in the
frequent crashes of the stock markets in different parts of the world. However, we still need to
measure the impact of Covid-19 on the financial markets and we lack significant research in
the given domain. The present paper would be one of the pioneer studies on the impact of
Covid-19 on Indian financial markets. The paper focuses on the impact of Covid-19 on the
market return as well as on the level of volatility in the market. An honest attempt is made
to develop the model using GARCH approach. It reflects the relationships of impact of
Covid-19 on market volatility.

Need for the Study

World Economic Forum (2020, p. 1), stated that, “Globally, the corona virus shock is severe
even compared to the Great Financial Crisis in 2007-08”. The world is staring at a recession
and the economic output shrank in June 2020 quarter and a lower growth is expected in FY
2021. The Indian economy was in the grip of recession even before the onset of Covid-19.
The economy itself was facing a slowdown and the lockdown has only worsened the scenario.
56 days of lockdown has battered the growth of the Indian economy and there is 16.7%
decline in industrial output. India is estimated to have lost over 32,000 cr every day during
the lockdown. The estimated losses by May 3 would be $234.4 bn as per the British investment
bank Barclays. The economy is in the grip of fear and liquidity crunch.
The losses are felt even in the stock exchange following the onset of Covid-19. In just one
week, the impact shaved off nearly one-third of market capitalization. However, rebound in
the stock market was felt with a series of recovery measures, but even today market is down by
20% in comparison to pre-impact situation. Many experts have started estimating expected
loss and disruption for the country’s economy due to Covid-19, however its specific impact
on stock market is not researched much.

Literature Review
There is a little but speedily rising literature on the impact of Covid-19 on the stock market
(e.g., Baker et al., 2020; Gormsen and Koijen, 2020; and Yilmazkuday, 2020). Yilmazkuday
(2020) studies the impact of the number of deaths related to Covid-19 on the S&P 500.
While there is a limited prior literature on the direct impact of the pandemic, the purpose
of the literature review is to draw an imperfect parallel from other forms of natural disasters.
Stock market is highly sensitive to any favorable information like high growth rate of the
economy or the visit of US President and also to negative information like natural disasters
or terrorism. In the last few months, the impact of Covid has created chaos in the stock
market. As the global economy is in the grip of Covid-19, it is imperative to compare the
given situation with previous events to draw general conclusions. Past studies like impact of
natural disasters on stock market can provide insights.

8 The IUP Journal of Financial Risk Management, Vol. XVII, No. 3, 2020
 This section evaluates and arranges literature into two parts. The first part is related to
the scarce literature available on Covid-19. The second part of the literature is related to
other unprecedented events and their impact on stock markets. The objective of the section
is to focus on the framework and research gap.
In the literature related to Covid-19, McKibbin and Fernando (2020) have identified
stock market as one of the seven areas where Covid-19 can have an impact. Sansa (2020)
used the Shanghai Stock Exchange as a sample for China and the New York Dow Jones as a
sample for the US. While investigating the impact of Covid-19 on the financial markets, the
study considered Covid-19 confirmed cases to be the independent variable. Shanghai Stock
Exchange and New York Dow Jones are taken as dependent variables of the study. The study
employs simple regression in double log and semi log linear model.
Onali (2020) in his preprint has used GARCH(1, 1) model and studied the impact of
confirmed cases and Covid-19 deaths on the countries that were majorly affected by the
pandemic. The countries are the US, China, Italy, UK, Iran and France. The results, based on
the data up to April 9, 2020 and GARCH(1, 1) models, suggest that in the first three months
of 2020, the impact of Covid-19 on US stock market was insignificant. However, there is
evidence of a positive impact on the conditional heteroskedasticity of the Dow Jones and
S&P returns. The study also employed VAR model which suggests that the number of deaths
in major European countries like France and Italy had a negative impact on Dow Jones
returns and a positive impact on VIX.
Literature related to other natural disasters and pandemics provides some perception
about the impact of unprecedented events. Ferreira and Karali (2015) studied the impact of
earthquakes on stock market using GARCH(1, 1) model. The findings report that stock
market volatility is unaffected, except for Japan.
However, influenza has shown a significant impact on economic output (McKibbin and
Sidorenko, 2006), trading activity and return (McTier et al., 2013).
On similar lines, investigation by Lee et al. (2018) applying GARCH model found that
natural disasters like 2008 Sichuan Earthquake in China caused the most significant contagion
effect on the stock markets of neighboring Asian countries. The same has been noticed in
the case of US financial crisis triggered by the secondary mortgage, which generated the
strongest impact on the stock market of other developing and emerging economies.

Research Gap
On the basis of literature review, it can be concluded that there is conflict on the point of
impact of unprecedented events on stock market returns. Moreover, most of the studies have
been conducted in European economy, Chinese economy or US economy. There is hardly any
study available which is related to the Indian stock market. India is one of the fastest-growing
economies of the world. According to IMF’s World Economic Outlook (2019), based on nominal
GDP, India is the fifth-largest economy in 2019, overtaking the United Kingdom and France. So
it is important to measure how Indian stock market is behaving during this pandemic.

Has Covid-19 Infected Indian Stock Market? An Insight with Respect to NSE 9
Objective
Following are the objectives of the study:
• To investigate the effect of Covid-19 on Indian stock market returns and its
volatility; and
• To propose a GARCH model for conditional variance of Nifty index return.

Hypotheses
There are mainly six hypotheses tested at different stages:
Ha0: There is no unit root for the selected series. The series is stationary.
Ha1: There is unit root for the selected series.
Hb0: There is no ARCH effect in selected series.
Hb1: There is ARCH effect in selected series.
Hc0: There is no significant relation between stock return and total cases of Covid-19.
Hc1: There is significant relation between stock return and total cases of Covid-19.
Hd0: There is no significant relation between conditional variance of stock market and total
cases of Covid-19.
Hd1: There is significant relation between conditional variance of stock market and total cases
of Covid-19.
He0: There is no ARCH effect in the residual of the model.
He1: There is ARCH effect in the residual of the model.
Hf0: There is no autocorrelation in the residual of the model.
Hf1: There is autocorrelation in the residual of the model.

Data and Methodology

National Stock Exchange (NSE) has been selected for the study. During lockdown when most
of the activities of the Indian system adopted virtual platform, NSE was found to be the appropriate
choice for study as it is India’s largest electronic market. The proxy variables considered for the
market performance are change in market volatility expectation represented by India VIX, i.e.,
India Volatility Index, an index disseminated by the NSE. Bid and ask price is considered for the
volatility figure (%) which indicates the volatility in the next 30 calendar days. It measures the
degree of volatility or fluctuation that active traders expect in the Nifty 50 over the next 30
days. Nifty 50 return has been considered as proxy variable for NSE market performance. Stock
market data for the period May 16, 2019 to May 13, 2020 has been collected from nse.india.com.
Total cases of Covid-19 data in India was collected from WHO website.
• The study begins with the calculation of return with the time series data of Nifty
50 and VIX.
ln(Pi / Pi – 1) ...(1)

10 The IUP Journal of Financial Risk Management, Vol. XVII, No. 3, 2020
 • Total number of Covid-19 cases has also been converted into natural logarithm
by employing the equation ln(1 + xi), where xi is the total number of Covid-19
cases in India.

• Using ln(xt) instead of ln(1 + xt) would result in missing values for days for which
the total number of cases or deaths is zero.

• The study first employs Augment-Dickey Fuller (ADF) test to check for statistical
stationarity of the variables.

• ARCH-LM test is conducted to investigate the ARCH effect on heteroskedasticity

property of the time series data.

• The paper employs GARCH(1, 1) with the following specification for the
conditional mean Equation (2) and the conditional variance Equation (3):

Yt = C(1) + C(2) * Xt + C(3) * VIXt + C(4)Di + et ...(2)

2 = C(5) + C(6) * RESID(–1)^2 + C(7) * GARCH(–1)

+ C(8) * D(CASES) ...(3)
where Yt and VIXt are the first-difference of the price and trading volume (in logs) of the NSE
at time t, respectively, et are the innovations, and 2 or GARCH(1,1) is the conditional
variance. The variables related to reported Covid-19 cases and deaths are represented by Xt,
which is equal to the first-difference in ln(1+ xt), where ln represents the natural logarithm
function and xt is cumulative (i.e., since records began) reported number of cases (total cases)
in India. Di is the dummy days included for lockdown period of April 2020 and May 2020 of
the sample data. The impact of Covid-19 cases and deaths is estimated by extending the
common GARCH(1, 1) model. The GARCH(1, 1) model is derived under three different
error distribution methods:
• Normal Distribution Method
• Students’ t Distribution Method
• General Error Distribution Method (GED).
The study further includes two residual diagnostic tests for GARCH(1, 1) model fit. The
study carries out ARCH-LM test for ARCH effect in residual and correlogram Q-statistic
test for autocorrelation in the residual.

Data Analysis
The visual representations of time series data of stock return (log) and VIX (log) show volatility
clustering (Figures 1 and 2), whereas ‘total cases’ (log) has shown an increasing trend with
time (Figure 3).

Has Covid-19 Infected Indian Stock Market? An Insight with Respect to NSE 11
 Figure 1: Time Series Data of Nifty (Log)

Index
0.10

0.05

–0.05

–0.10

–0.15
II III IV I II
2019 2020

Figure 2: Time Series Data of VIX (Log)

VIX
0.3
0.2
0.1
0
–0.1
–0.2
–0.3
–0.4
II III IV I II
2019 2020

Figure 3: Time Series Data of Total Cases (Log)

Cases
12

10

6
4

0
25 50 75 100 125 150 175 200 225

12 The IUP Journal of Financial Risk Management, Vol. XVII, No. 3, 2020
Test of Stationarity
Table 1: Stationarity Test
ADF test has been conducted on
three sets of time series data, i.e., Variable Critical Value
Index return (log), VIX return
Index (log) –17.21169***
(log) and total cases (log). Index
return and VIX return are found VIX (log) –13.12705***
to be stationary at level, whereas
total cases (log) data is stationary Total cases (log) – First difference –3.726594***
at first difference (Table 1).
Note: *p < 0.1; **p < 0.05; and ***p < 0.01.
Test of Heteroskedasticity
ARCH-LM test has been conducted on the data series. The test has significant, confirming
presence of ARCH effect or heteroskedasticity in the data (Table 2). The presence of
ARCH effect in data confirms applicability of GARCH Model. Further, the study employs
GARCH(1, 1) model (Tables 3, 4 and 5).

Table 2: ARCH Effect Test

Heteroskedasticity Test: ARCH

F-statistic 17.55496 Prob. F(1,245) 0.0000

Obs.*R2 16.51493 Prob. Chi-Square(1) 0.0000

Results and Discussion

GARCH Model
The results of GARCH(1, 1) for total cases in India and NSE are reported in Table 3. The results
for total cases in conditional equation in all the three error distribution methods suggest
that total cases of Covid-19 have not affected the stock market return. The lockdown period

Table 3: NSE Mean Equation

Error Distribution Method C(1) C(2) C(3) C(4)

Normal –0.0004 –0.1183*** 0.0142 –0.0052

[1.297406] [–10.91310] [0.848476] [–0.730720]

Students’ t –0.000152 –0.120535*** 0.005549 –0.006704

[–0.369434] [–14.53223] [0.249684] [–1.058862]

GED –6.75E–05 –0.120075*** 0.002469 –0.004451

[–0.184623] [–14.96196] [0.150200} [–0.819944]

Note: * p < 0.1; ** p < 0.05; and *** p < 0.01; z-statistics denoted in [ ].

Has Covid-19 Infected Indian Stock Market? An Insight with Respect to NSE 13
of April 2020 and May 2020 has also not shown any significant impact on stock returns of
Nifty.
However, it has a positive impact on the volatility of the stock market. The result
shows evidence of a mild impact of total cases of Covid-19 in India on stock market volatility
(Table 4). The results on the control variable suggest that there is a negative correlation
between stock market returns and volatility expectations, consistent with previous literature
on the relationship between India VIX and Indian stock market returns (Mollick and Assefa,
2013; and Fernandes et al., 2014) (Table 4).

Table 4: Variance Equation

Error Distribution Method C(5) C(6) C(7) C(8) C(6) + C(7)

Normal 2.07E–05 0.853798*** 0.08645 0.003321*** 0.93945

[4.626918] [9.022837] [1.261973] [2.690707]

Students’ t 2.32E–05** 0.382280** 0.278838* 0.002637* 0.6611

[2.470270] [2.440145] [1.841775] [1.798942]

GED 2.08E–05** 0.512708*** 0.232734 0.002256 0.7454

[2.478804] [3.038389] [1.531017] [0.1029]

Note: * p < 0.1; ** p < 0.05; and *** p < 0.01; z-statistics denoted in [ ].

The constant of variance equations are almost equal to zero (Table 4). This shows that the
current volatility of the market is heavily premised on squared residual and previous stock
volatility. The results also indicate volatility persistence as the value of C(6) + C(7) is less
than 1 (Table 4).
The fit of the model is measured by adjusted R2. The adjusted R2 value for three models is
0.209132, 0.216336, 0.214572, respectively (Table 5). The R value indicates that for a given
dataset, the estimated model fits reasonably. Asteriou and Hall (2011) express that the adjusted
R2 is a better measurement instead of R2, because it is adjusted for the degrees of freedom.
Further, Studenmund (2001) states that the adjusted R2 can be used to compare the fitness of
equations with the same dependent variable from different number of independent variables.
Due to this most of the researchers prefer to use adjusted R2 over R2 when evaluating the
fitness of regression equation.
The values of the Durbin-Watson statistic are closer to 2 in all the three estimated models,
showing that the models are likely to be free from serial correlation. The Durbin-Watson
statistic should have a range of 0 to 4.
The statistics show high likelihood and low AIC and SC values. This also indicates the
stability of the model (Table 5).

14 The IUP Journal of Financial Risk Management, Vol. XVII, No. 3, 2020
 Table 5: Regression Statistics

Error Distribution R2 Adj. R2 Durbin- Log AIC SC

Method Watson Likelihood

Normal 0.218738 0.209132 2.246987 790.1801 –6.307904 –6.194567

Students’ t 0.225855 0.216336 2.300993 805.0248 –6.419555 –6.292052

GED 0.224111 0.214572 2.317177 803.1282 –6.404260 –6.276756

Residual Diagnostic Test

The result of the ARCH-LM test shows that the F-statistic value is insignificant in all the
three models. The given statistics provides evidence to accept the null hypothesis of no
ARCH effect in the models. The presented model is therefore free from conditional
heteroskedasticity (Table 6).

Table 6: ARCH LM – Residual Diagnostics Test

Error Distribution Method Obs.*R2 p-Value

Normal 0.005773 0.9394

Students’ t 0.184786 0.6673

GED 0.036370 0.8488

A residual diagnostic test of correlogram Q-statistic is conducted to check autocorrelation

for the three estimated models. The results under all the three error distribution methods are
found to be insignificant. This allows us to accept the null hypothesis of no autocorrelation
in the residual (Tables 7, 8 and 9).

Table 7: Correlogram Test of Autocorrelation

(Normal Distribution Method)

Included Observations: 248 after adjustments

Autocorrelation Partial Correlation AC PAC Q-Stat. Prob.*

.|. | .|. | 1 –0.062 –0.062 0.9543 0.329

.|. | .|. | 2 –0.041 –0.045 1.3763 0.503

.|. | .|. | 3 –0.059 –0.065 2.2566 0.521

Has Covid-19 Infected Indian Stock Market? An Insight with Respect to NSE 15
 Table 7 (Cont.)

Autocorrelation Partial Correlation AC PAC Q-Stat. Prob.*

.|. | .|. | 4 0.065 0.056 3.3467 0.502

.|. | .|. | 5 0.014 0.017 3.3959 0.639

.|. | .|. | 6 –0.063 –0.060 4.3987 0.623

*|. | *|. | 7 –0.072 –0.072 5.7191 0.573

.|. | .|. | 8 0.021 0.004 5.8283 0.666

.|. | .|. | 9 0.020 0.007 5.9313 0.747

.|. | .|. | 10 0.042 0.045 6.3927 0.781

.|. | .|. | 11 –0.038 –0.021 6.7787 0.817

.|. | .|. | 12 –0.012 –0.015 6.8174 0.869

.|* | .|* | 13 0.101 0.094 9.5279 0.732

.|. | .|. | 14 –0.013 –0.013 9.5706 0.793

.|. | .|. | 15 0.024 0.035 9.7182 0.837

.|. | .|. | 16 0.008 0.032 9.7349 0.880

.|. | .|. | 17 0.073 0.070 11.151 0.849

.|. | .|* | 18 0.070 0.081 12.479 0.822

.|. | .|. | 19 –0.012 0.013 12.521 0.862

*|. | *|. | 20 –0.113 –0.095 15.985 0.718

*|. | *|. | 21 –0.128 –0.147 20.477 0.491

.|. | *|. | 22 –0.060 –0.101 21.464 0.492

.|. | .|. | 23 –0.010 –0.051 21.494 0.551

.|. | .|. | 24 0.043 0.055 21.999 0.579

.|. | .|. | 25 –0.055 –0.036 22.851 0.586

.|. | .|. | 26 0.027 0.007 23.056 0.630

.|. | .|. | 27 0.036 0.012 23.417 0.662

16 The IUP Journal of Financial Risk Management, Vol. XVII, No. 3, 2020
 Table 7 (Cont.)

Autocorrelation Partial Correlation AC PAC Q-Stat. Prob.*

.|. | .|. | 28 0.055 0.021 24.275 0.667

.|. | .|. | 29 –0.036 –0.026 24.642 0.697

.|. | .|. | 30 0.020 0.028 24.755 0.737

.|* | .|* | 31 0.095 0.108 27.340 0.655

.|. | .|. | 32 –0.028 –0.021 27.564 0.691

.|. | .|. | 33 –0.013 0.013 27.616 0.732

.|. | .|. | 34 –0.040 –0.025 28.081 0.752

.|. | .|. | 35 0.014 0.004 28.139 0.788

*|. | *|. | 36 –0.106 –0.114 31.428 0.686

Note: *Probabilities may not be valid for this equation specification.

Table 8: Correlogram Test of Autocorrelation

(Students’ t Distribution Method)

Included Observations: 248 after adjustments

Autocorrelation Partial Correlation AC PAC Q-Stat. Prob.*

.|. | .|. | 1 –0.064 –0.064 1.0345 0.309

.|. | .|. | 2 –0.054 –0.058 1.7704 0.413

.|. | *|. | 3 –0.062 –0.070 2.7487 0.432

.|. | .|. | 4 0.058 0.046 3.6043 0.462

.|. | .|. | 5 0.026 0.026 3.7718 0.583

*|. | *|. | 6 –0.086 –0.082 5.6619 0.462

.|. | *|. | 7 –0.064 –0.067 6.7200 0.459

.|. | .|. | 8 0.035 0.018 7.0456 0.532

.|. | .|. | 9 0.025 0.009 7.2038 0.616

.|. | .|. | 10 0.042 0.047 7.6556 0.662

Has Covid-19 Infected Indian Stock Market? An Insight with Respect to NSE 17
 Table 8 (Cont.)

Autocorrelation Partial Correlation AC PAC Q-Stat. Prob.*

.|. | .|. | 11 –0.037 –0.015 8.0045 0.713

.|. | .|. | 12 –0.028 –0.033 8.2145 0.768

.|* | .|* | 13 0.094 0.082 10.555 0.648

.|. | .|. | 14 0.000 0.002 10.555 0.721

.|. | .|. | 15 0.020 0.034 10.667 0.776

.|. | .|. | 16 0.021 0.050 10.783 0.823

.|. | .|* | 17 0.071 0.075 12.136 0.792

.|* | .|* | 18 0.086 0.094 14.144 0.720

.|. | .|. | 19 –0.027 0.008 14.337 0.764

*|. | *|. | 20 –0.113 –0.094 17.806 0.600

*|. | *|. | 21 –0.110 –0.128 21.138 0.451

.|. | *|. | 22 –0.064 –0.106 22.270 0.444

.|. | .|. | 23 0.016 –0.024 22.339 0.500

.|. | .|. | 24 0.056 0.071 23.203 0.508

.|. | .|. | 25 –0.046 –0.024 23.792 0.531

.|. | .|. | 26 0.035 0.015 24.142 0.568

.|. | .|. | 27 0.022 –0.004 24.284 0.615

.|. | .|. | 28 0.044 0.008 24.821 0.638

.|. | .|. | 29 –0.025 –0.014 25.004 0.678

.|. | .|. | 30 0.029 0.052 25.239 0.713

.|* | .|* | 31 0.114 0.129 28.960 0.571

.|. | .|. | 32 –0.027 –0.010 29.168 0.611

.|. | .|. | 33 –0.011 0.006 29.206 0.657

.|. | .|. | 34 –0.031 –0.027 29.486 0.689

18 The IUP Journal of Financial Risk Management, Vol. XVII, No. 3, 2020
 Table 8 (Cont.)

Autocorrelation Partial Correlation AC PAC Q-Stat. Prob.*

.|. | .|. | 35 0.007 –0.007 29.500 0.731

*|. | *|. | 36 –0.090 –0.095 31.853 0.666

Note: *Probabilities may not be valid for this equation specification.

Table 9: Correlogram Test of Autocorrelation

(GED Method)

Included Observations: 248 after adjustments

Autocorrelation Partial Correlation AC PAC Q-Stat. Prob.*

*|. | *|. | 1 –0.067 –0.067 1.1235 0.289

.|. | .|. | 2 –0.052 –0.056 1.7968 0.407

.|. | .|. | 3 –0.057 –0.065 2.6264 0.453

.|. | .|. | 4 0.055 0.044 3.3992 0.493

.|. | .|. | 5 0.019 0.019 3.4879 0.625

*|. | *|. | 6 –0.081 –0.077 5.1586 0.524

*|. | *|. | 7 –0.071 –0.076 6.4564 0.488

.|. | .|. | 8 0.031 0.012 6.6989 0.569

.|. | .|. | 9 0.024 0.008 6.8439 0.653

.|. | .|. | 10 0.041 0.046 7.2918 0.698

.|. | .|. | 11 –0.041 –0.022 7.7384 0.737

.|. | .|. | 12 –0.022 –0.028 7.8645 0.796

.|* | .|* | 13 0.094 0.081 10.211 0.677

.|. | .|. | 14 –0.002 –0.001 10.212 0.746

.|. | .|. | 15 0.026 0.041 10.398 0.794

.|. | .|. | 16 0.017 0.045 10.474 0.841

.|. | .|. | 17 0.067 0.070 11.667 0.820

Has Covid-19 Infected Indian Stock Market? An Insight with Respect to NSE 19
 Table 9 (Cont.)

Autocorrelation Partial Correlation AC PAC Q-Stat. Prob.*

.|* | .|* | 18 0.083 0.093 13.544 0.758

.|. | .|. | 19 –0.022 0.011 13.669 0.803

*|. | *|. | 20 –0.119 –0.099 17.515 0.619

*|. | *|. | 21 –0.119 –0.136 21.358 0.437

*|. | *|. | 22 –0.067 –0.109 22.574 0.426

.|. | .|. | 23 0.006 –0.036 22.583 0.485

.|. | .|. | 24 0.049 0.063 23.248 0.505

.|. | .|. | 25 –0.049 –0.029 23.908 0.525

.|. | .|. | 26 0.032 0.009 24.191 0.565

.|. | .|. | 27 0.026 –0.004 24.388 0.609

.|. | .|. | 28 0.045 0.008 24.958 0.630

.|. | .|. | 29 –0.030 –0.021 25.211 0.667

.|. | .|. | 30 0.024 0.042 25.370 0.707

.|* | .|* | 31 0.108 0.121 28.703 0.585

.|. | .|. | 32 –0.027 –0.013 28.916 0.623

.|. | .|. | 33 –0.014 0.005 28.974 0.668

.|. | .|. | 34 –0.031 –0.022 29.243 0.700

.|. | .|. | 35 0.006 –0.003 29.252 0.741

*|. | *|. | 36 –0.095 –0.099 31.878 0.665

Conclusion
This paper investigated the impact of Covid-19 on Indian stock market returns (proxied by
Nifty 50 index) and its volatility. The results are based on the data taken up to May 13, 2020.
GARCH(1, 1) model suggests that there is no significant impact of Covid-19 on stock market
returns. However, the volatility of the market has been mildly affected by the total number of
Covid-19 cases existing in India. Volatility is the tendency of the stock price to change in the
future. The positive impact of total cases on Indian stock volatility indicates that if the total

20 The IUP Journal of Financial Risk Management, Vol. XVII, No. 3, 2020
Covid-19 cases keep on increasing, the Indian stock market may have one of the further
mentioned implications. First, investors may find it difficult to agree that explanation of the
changes lies in information about non-economic factors when asset prices fluctuate sharply
over a time differential as short as one or less. This might lead to erosion of confidence in
capital market and a reduced flow of capital in capital market. Second, surge in volatility may
disturb the liquidity of the stock market. Third, investors are generally risk-averse. Therefore,
if the volatility of stock market rises with the increase in total number of Covid-19 cases,
then it may affect the investment adversely. The model explains approximately 20% of
variation of Indian stock market.

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