How Does COVID-19 Affect the Volatility Spillover Between the Exchange Rate and the Export-oriented Businesses in Iran?

Abstract

This study concentrates on examining the volatility spillover effects between the exchange rate (IRR to USD) and the leading export-oriented industries (i.e., petrochemical, basic metals and minerals) in Tehran Stock Exchange before and after the COVID-19 pandemic. Using DCC- and asymmetric DCC-GARCH approaches, the data sample (from 15 December 2018 to 24 April 2021) has been partitioned into two sub-samples: before and after the official announcement of COVID-19 outbreak. The results demonstrate that from the pre- to post-COVID-19 periods, first, the average returns of all industries have sharply fallen; second, the volatility of all variables has been significantly augmented in different horizons; third, for all industries, not only has the fractal market hypothesis approved in both separated periods, but also analysing the values of the fractional difference parameter, together with the outcomes of GARCH models, supports in the higher-risk post-COVID-19 period, wherein the effects of exogenous shocks last longer than their impacts in the alternative lower-risk period. Furthermore, our investigations demonstrate that the asymmetric spillover (based on the ADCC-GARCH models) in both pre- and post-COVID-19 periods are confirmed in all three industries, except for minerals after the novel coronavirus.Ultimately, the results not only corroborate the increase in the volatility spillover effects right after the COVID-19 but also substantiate that the exchange rate contributes most of the spillover effects into the petrochemical and minerals industries, which have been almost twice as much as those of the basic metals.

COVİD-19 Döneminde Hisse Senedi Volatilitesi, Likidite, Döviz Kuru Getirisi Ve Hisse Senedi Getirisi Arasindaki İlişki: BİST-100 Örneği

“…When these studies are examined, it has been observed that some of the studies focused on the effects of the pandemic on stock market volatility (Baek, Mohanty and Glambosky, 2020;Mirza, Naqvi, Rahat and Rizvi, 2020;Albulescu, 2021;Izzeldin, Muradoğlu, Pappas and Sivaprasad, 2021;Shahzad, Naeem, Peng and Bouri, 2021;Christopoulos, Kalantonis, Katsampoxakis and Vergos, 2021;Engelhardt, Krause, Neukirchen and Porsch, 2021;Topcu, Yagli and Emirmahmutoglu, 2021;Uddin, Chowdhury, Anderson and Chaudhuri, 2021;Wang, Xu and Sharma, 2021;Bakry et al, 2022;Diaz, Henríquez, and Winkelried, 2022;Sreenu and Pradhan, 2022;Vera-Valdes, 2022;Xu, 2022). In addition, exchange rate returns volatility (Feng, Yang, Gong and Chang, 2021;Honarmandi and Zarei, 2022;Yıldırım, Erdoğan and Tarı, 2022;Geng and Guo, 2022), stock return (Yiu and Tsang, 2022;Handoyo, Ibrahim and Indrawan, 2022); returns and volatility (Rakshit and Neog, 2021;Bissoondoyal-Bheenick, Do, Hu and Zhong, 2021;Pyo, 2021;Ozdemir, Ercan, Grima and Romānova, 2021;Song, Bouri, Ghosh and Kanjilal, 2021;Li et al ., 2021;Kusumahadi and Permana, 2021;Wasiuzzaman, 2022), exchange rate returns and return (Torbecke, 2021;Narayan, 2022b), stock price and exchange rate returns (Hoshikawa and Yoshimi, 2021;Rai and Garg, 2022;), liquidity and return (Park and Newaz, 2021;…”