Relationship Between Stock Volatility and Macro-Economic Variables During COVID 19 and Its Impact on Indian Economy

Abstract

Stock prices/indices have always played a very crucial role in any economy and in recent times it has also become an important parameter in defining the financial matrix of any country along with conventional measures such as interest rates, exchange rates, GDP growth rates etc.

The effects of the COVID-19 pandemic on economies are an ongoing study which includes through various simulations and forecasts. The financial markets have obviously been impacted and its manifestation can be seen in data trends since the first lockdown from March 2020 to June 2021. The uncertainty created by the pandemic has caused fluctuations in macroeconomic variables and has increased volatility in the developed as well as emerging stock markets. In India some of these factors are even mutually dependent and the interaction among them is worth studying. Hence, this paper is an attempt to study the relationship between macroeconomic variables viz. GDP growth rate, exchange rate, etc. and volatility in stock exchange during the first lockdown period (24 May to 31 June 2020) in India. NIFTY 50 has been selected as the stock exchange under this study and the monthly data of all the variables as on 1 May to 31 June 2020 were collected from secondary sources. These data were analysed using linear regression analyses and it was found that there is a strong and significant relationship between the macro-economic variables and volatility of stocks of NIFTY 50 stock exchange even during the pandemic. The impact of stock volatility on Indian economy due to the pandemic was studied on other macro-economic variables based on data collected during the pandemic.