Domestic intermarket linkages: measuring dynamic return and volatility connectedness among Indian financial markets

Neharika Sobti ()
Additional contact information
Neharika Sobti: University of Delhi

DECISION: Official Journal of the Indian Institute of Management Calcutta, 2018, vol. 45, issue 4, No 5, 325-344

Abstract: Abstract The dynamic functioning of the markets and increased economic and financial integration has made the world more vulnerable to systemic shocks emanating either domestically from cross-market connectedness or globally from cross-country connectedness. The study focuses on the former channel of transmission of shocks within a country (India) due to linkages among its five financial markets that are analysed using a widely adopted Connectedness measure of Diebold and Yilmaz (J Econom 182(1):119–134, 2014) which is based on weighted and directed network analysis of variance decomposition in a generalized VAR framework which is an improvement of the Diebold and Yilmaz (Econ J 119(534): 158–171, 2009, Int J Forecast 28(1):57–66, 2012) method. An attempt has been made to analyse the return and volatility connectedness among five financial markets in India: stock, bond, money, foreign exchange and commodity markets from 2006 to 2017. The purpose of this study is to examine the dynamic interrelationships among these five markets with an aim to demystify issues like which markets are major transmitters of shocks, which markets are more vulnerable to propagation of such shocks, which markets are ideal for hedging against these shocks and how to achieve portfolio diversification benefit within India. The study reveals that stock markets and foreign exchange market are the largest transmitter of shocks to return, while volatility connectedness analyses reveals that commodity market is the largest net volatility transmitter to other asset markets along with forex and stock markets. The bond and money markets in India remain largely insulated from domestic connectedness effects. Dynamic connectedness measure highlights that Indian asset markets are more vulnerable to internal shocks as domestic connectedness amplifies the effects of external shocks.

Keywords: Connectedness; Intermarket linkages; Return; Volatility; India (search for similar items in EconPapers)
JEL-codes: C58 F36 G11 G12 Q02 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://link.springer.com/10.1007/s40622-018-0196-6 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:decisn:v:45:y:2018:i:4:d:10.1007_s40622-018-0196-6

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/40622

DOI: 10.1007/s40622-018-0196-6

Access Statistics for this article

DECISION: Official Journal of the Indian Institute of Management Calcutta is currently edited by Rajesh Babu

More articles in DECISION: Official Journal of the Indian Institute of Management Calcutta from Springer, Indian Institute of Management Calcutta
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().