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

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.

KEYWORDS:

• Exchange rates
• stock market
• COVID-19
• volatility

JEL CLASSIFICATION:

• C52
• E44
• F31
• F37

Disclosure statement

No potential conflict of interest was reported by the authors.

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Notes

¹ BRIICS is an acronym used for a group of fast emerging market economies (EMEs), namely, Brazil, Russia, India, Indonesia, China, and South Africa.

² Some of the studies conducted on impact of COVID-19 on financial markets include Ali, Alam, and Rizvi (2020), Phan and Narayan (2020), Zhang, Hu, and Ji (2020), Narayan (2020), Narayan, Devpura, and Wang (2020) Gil-Alana and Claudio-Quiroga (2020), Prabheesh (2020), Salisu and Sikiru (2020), Sharma (2020), Prabheesh, Padhan, and Garg (2020), Prabheesh, Garg and Padhan (2020).

³ Narayan, Narayan, and Prasad (2008) argue that knowledge of real variables are not required to tracking the daily behaviour.

⁴ We find that both stock and exchange returns are stationary at levels. For brevity, unit root results are not reported, but are available on request.