Examining intersector risk synchronization in the Indian stock market: evidence from a time-varying connectedness approach

P Vairasigamani and S Amilan

Journal of Investment Strategies

Abstract: In an attempt to unravel the intricate web of interconnectedness in the Indian equity market during periods of crisis, this study delves into the volatility spillover in three distinct crises: the Covid-19 pandemic (health), the Russia–Ukraine war (geopolitics) and the collapse of Silicon Valley Bank (financial), as well as a noncrisis period. Employing the time-varying parameter vector autoregression method, it analyzes both intrasectoral and intersectoral dynamics. The findings present a compelling picture: the auto, capital goods and realty sectors consistently amplify risk across events, while the banking, fast-moving consumer goods and health care sectors invariably play the role of shock absorbers. Interestingly, the other sectors exhibit a dual nature, acting as both transmitters and receivers of risk turbulence. This granular understanding of sector-specific risk dynamics empowers portfolio managers to strategically adjust asset allocation during times of crisis. Notably, this study not only fills a critical gap in our understanding of emerging market resilience but also advances the field by comparing sector interconnectedness across these distinct crises.

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