Dynamics of Correlation and Volatility in New Age Technology (Industry 4.0) Sectoral Indices and Traditional Sectoral Indices in US and India
107 Pages Posted: 22 Apr 2021 Last revised: 1 Jun 2021
Date Written: April 28, 2021
This paper investigates the time-varying correlation and the volatility behaviour of the New Age Technology (Industry 4.0) sectors and, traditional sectors in US (NASDAQ sectoral indices) and India (Nifty sectoral indices) using ADCC/DCC – GARCH models. We also assess the impact of Global Financial Crisis due to sub-prime mortgages and Global Lockdown Crisis due to COVID -19 pandemic on the volatility behaviour and the time – varying correlation of these indices. Risk measures – VaR and Expected Shortfall calculated using Extreme Value Theory are also presented.
All the sectoral indices exhibited asymmetric volatility behaviour. Among the indices in the NASDAQ sectoral group, only NASDAQ Computer index did not show a significant increase in volatility during both the crises. Autonomous Vehicles, Clean Technology, Cybersecurity, 3D Printing, Smart Buildings and Virtual Reality indices did not show a significant increase in volatility during Global Lockdown Crisis. While all the traditional sectoral indices except NASDAQ Bank exhibited asymmetric behaviour in correlation, Industry 4.0 indices such as Robotics, 3D printing, Clean Energy and Virtual Reality did not. In India, only Nifty IT and Nifty FMCG indices did not exhibit significant increase in volatility during the Global Lockdown Crisis. Correlation generally increased for all the sectoral indices during the crises.
Keywords: Asymmetric Dynamic Conditional Correlation, Volatility, Portfolio Diversification, GARCH Models, COVID-19 Crisis, Sub-prime Mortgage Crisis, NASDAQ Sectors, Nifty Sectors, Fourth Industrial Revolution, Industry 4.0, VaR, Expected Shortfall, Extreme Value Theory
JEL Classification: C58, F30, G01, G11, G14, G15
Suggested Citation: Suggested Citation