Do Financial Assets Move in Tandem During High Impact Period of a Crisis: Evidence from Global Financial Crisis and COVID-19 Pandemic Periods

The present study investigates and compares the co-movement between four asset classes namely Crude, Gold, Nifty 50 Stock Index, and Rupee–Dollar Exchange Rate during the two crisis periods viz. the Global Financial Crisis (GFC) and the COVID-19 Crisis. The methodology employed for ascertaining inter-relationship includes the Johansen Co-integration technique and Toda & Yamamoto Causality model. Besides this, the entire model has been set up under the VAR Framework with Variance Decomposition and Impulse Responses giving useful insight into the relationship among the stated variables. The results of the study, however, failed to identify any co-integration among the assets during any of the two crisis periods, however, there was evidence of short-run cause–effect relation among some of the variables. The causality flow was uni-directional from Nifty 50 to both crude and exchange rate in Period I (GFC Period) while in Period II (COVID-19 Crisis Period) it was bi-directional between Gold and Nifty 50. Causality was also seen from Foreign Exchange to Gold in Period II. Further ADF Breakpoint showed all the variables were I(1) stationary and the VAR Model was also proved stable as shown by AR Characteristics Root Plots. The impulses showed that Period II or COVID-19 Crisis Period retained the innovations of other variables for a longer duration than Period I (GFC Period).