Behavior of Indian sectoral stock price indices in the post subprime crisis period

Harsh Vardhan, Pankaj Sinha and Madhu Vij

Journal of Advances in Management Research, 2015, vol. 12, issue 1, 15-29

Abstract: Purpose - – The purpose of this paper is to demonstrate importance of usage of sector indices which provides insight for sector specific investment strategies and direction for suitable policy formulation for the Indian industry. It investigates long run, short run and causality relationships between eight identified sector indices and Sensex for the post subprime period. Design/methodology/approach - – The study uses Vector Error Correction Model (VECM) for econometric analysis. It employs Generalized Impulse Response and Variance Decomposition analysis for developed multivariate framework in order to provide information about precise interplay of the sector indices. Findings - – Long-term relationships between sector indices were determined by the usage of VECM indicating minimal benefits from diversifying investments to different sectors. Limited lead – lag short run relationships between sector indices were observed. Banking index played a predominant and integrating role in moving other indices. During this period of recovery; most sectors were protected and provided marginally better returns due to robust Banking policy. Realty and Metal were other significant drivers influencing remaining sectors contemporaneously. The study for the post subprime crisis period helps to understand the importance and behavior of interrelated sector indices and Sensex in the dynamic economic environment. Practical implications - – The study clearly provides direction for sector specific investment strategies and policy formulation. Originality/value - – The study highlights utility and importance of usage of sector indices. No study using sector indices for the Indian economy have been done earlier employing VAR for the post subprime crisis period.

Keywords: Generalized impulse response function (GIRF); Sector index; Vector Error Correction Model (VECM) (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jamrpp:v:12:y:2015:i:1:p:15-29

DOI: 10.1108/JAMR-10-2014-0061

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