COVID-19 as a Structural Break in Indian Stock Market Volatility: An ARIMAX–Interrupted Time Series Analysis of the NIFTY 50 (2013–2024)

Abstract

The present study examines the impact of the COVID-19 pandemic on the volatility dynamics of the Indian equity market, using the NIFTY 50 index as a proxy. An Interrupted Time Series Analysis (ITSA) embedded within an ARIMAX framework is employed to analyze daily data from 2013 to 2024, with the nationwide lockdown beginning on 24 March 2020 treated as an exogenous structural break. The model captures both the immediate level shift in volatility following the onset of the pandemic and the long-run change in its trend, while accounting for serial correlation and volatility clustering. The empirical results indicate a statistically significant surge in market volatility immediately after the lockdown, reflecting heightened uncertainty, liquidity pressures, and investor overreaction. Furthermore, the interaction between time and the post-COVID dummy variable reveals a significant change in the slope of volatility, suggesting a transition to a new volatility regime characterized by a higher baseline risk but gradual normalization over time. Counterfactual analysis further shows that, in the absence of the pandemic, volatility would have followed a much smoother and less steep trajectory. Overall, the findings provide strong evidence that COVID-19 constituted a structural break in the Indian equity market, altering both the level and the long-term dynamics of volatility. This study contributes to the existing literature by offering long-horizon empirical evidence from an emerging market and by demonstrating the effectiveness of quasi-experimental time-series methods in assessing the persistent financial impacts of systemic shocks.