Predicting the Symmetric and Asymmetric Volatility of Energy Market: Evidence from COVID Outbreak in India and USA

Abstract

The COVID-19 pandemic had a tremendous impact on the energy sector because of demand factor. Volatility has emerged as a major concern in the energy industry and COVID-19 has cast a dark shadow over this characteristic. We predict the symmetrical and asymmetric volatility of energy market in India and USA during COVID-19 outbreak tenure. The energy market is proxied by crude oil and natural gas of these two countries. For an empirical estimation, standard generalized autoregressive conditional heteroscedasticity (s-GARCH) and exponential GARCH (e-GARCH) are employed based on daily observations spanning from March 25, 2020 to January 31, 2022. The result reveals that new information is captured and there is volatility persistence in both Indian and US energy markets. The conditional volatility decays over the time of these markets since it is backed by mean reversion and Indian energy market decays fast comparatively. Additionally, it depicts that there is no leverage effect in both Indian and US energy markets. This study furnishes an insight to the investors and portfolio managers with respect to risk prediction considering impact of good and bad news.