CHANGES IN TAXONOMY- CASE OF INDIA BEFORE AND DURING COVID

Abstract

This paper examines the changes in linkages in the Indian financial system using Principal component analysis and distance matrix. It also defines relationship between various market forces such as share market, exchange rate, precious metal, derivatives market, commodity market , financial institutions, etc. The share market and VIX was the dominant factor influencing the movements in the financial structure prior to the crises however, the metal market and exchange rate were the factors showing the maximum change in its working. Furthermore, we observe that during a recession, financial markets become more interconnected. A greater financial system integration was discovered to begin just before the recession. This research will benefit Individuals, institutions, regulators, and central bankers from the research findings by having a better understanding of market structure during economic instability, allowing for more efficient techniques to be deployed to reduce systemic risk.