Empirical analysis of lead-lag relationship in the Indian stock market amid the COVID-19 pandemic

The markets often need to be more efficient during significant events, which enables investors to earn atypical returns. This study seeks to determine whether there was a lead or lag relationship between the Sensex and the Nifty from 2012 to 2023, including the COVID-19 pandemic period. This study uses the Granger causality test and two-step regression process to determine the existence and direction of causality along with cross-residual impact between Nifty and Sensex during the announcement of lockdowns and unlocks. We examine the responses of the indexes in the presence of an exogenous information shock (the lockdown and unlock announcement). The two-step regression model results show a cross-residual impact from Sensex to Nifty, suggesting that Sensex has a leading relationship with Nifty. Thus, Nifty and Sensex were inefficient during the pandemic. The findings provide evidence against the efficient market hypothesis and establish a lead-lag relationship between Nifty and Sensex.