Volatility Spillover Among the Sectoral Indices of the Indian Capital Market : Evidence from the COVID Period

Authors

  •   Satyaban Sahoo Assistant Professor, Department of Commerce, Manipal Academy of Higher Education (MAHE), Madhav Nagar, Manipal - 576 104, Karnataka
  •   Sanjay Kumar Assistant Professor, Department of Management, Central University of Rajasthan, Bandarsindri, Kishangarh - 305 817, Distt. Ajmer, Rajasthan

DOI:

https://doi.org/10.17010/ijf/2023/v17i9/173183

Keywords:

sectoral index

, Indian capital market, asymmetric DCC model, time-varying conditional correlation

JEL Classification Codes

, C1, C58, N25

Paper Submission Date

, October 5, 2022, Paper sent back for Revision, June 14, 2023, Paper Acceptance Date, June 25, Paper Published Online, September 15, 2023

Abstract

Purpose : The study aimed to empirically investigate the asymmetric volatility spillover relationship among the sectors of the Indian capital market during the COVID-19 period.

Methodology : The study employed the asymmetric dynamic conditional correlation (ADCC) model to measure volatility spillover among the sectoral indices with asymmetric effects to assess the impact of bad news. The study further calculated the time-varying conditional correlation.

Findings : The empirical analysis indicated short-run and long-run volatility persistence among sectoral indices of the Indian capital market. Furthermore, the results also showed the significant effect of bad news on the volatility of the sectoral indices. The time-varying conditional correlation suggested a high correlation among the sectoral indices during COVID-19. So, there was only a limited opportunity for portfolio diversification among these sectors during the crisis period.

Practical Implications : The findings may assist financial advisors in assessing the relationship among sectors of the Indian capital market during the crisis period. While constructing the equity investment portfolio during the crisis period, financial managers must wait for the market to stabilize before determining whether sector diversification is appropriate or required.

Originality : The ADCC model presented previously unresearched evidence of volatility spillover among the sectors of the Indian capital market during the COVID-19 crisis. The empirical findings would enable investors to make important investment and portfolio diversification decisions in sectors of the Indian capital market.

Downloads

Download data is not yet available.

Downloads

Published

2023-09-01

How to Cite

Sahoo, S., & Kumar, S. (2023). Volatility Spillover Among the Sectoral Indices of the Indian Capital Market : Evidence from the COVID Period. Indian Journal of Finance, 17(9), 41–57. https://doi.org/10.17010/ijf/2023/v17i9/173183

Issue

Volume 17, Issue 9, September 2023

Section

Articles
Crossref
Scopus
Google Scholar
Europe PMC

References

Ahmed, W. M. (2012). On the interdependence structure of market sector indices: The case of Qatar Exchange. Review of Accounting and Finance, 11(4), 468–488. https://doi.org/10.1108/14757701211279204

Alam, M. M., Wei, H., & Wahid, A. N. (2021). COVID-19 outbreak and sectoral performance of the Australian stock market: An event study analysis. Australian Economic Papers, 60(3), 482–495. https://doi.org/10.1111/1467-8454.12215

Amudha, R., & Muthukamu, M. (2018). Modeling symmetric and asymmetric volatility in the Indian stock market. Indian Journal of Finance, 12(11), 23–36. https://doi.org/10.17010/IJF/2018/V12I11/138196

Anbukarasi, M., & Nithya, P. (2014). Return and volatility analysis of the Indian sectoral indices–with special reference to National Stock Exchange. EPRA International Journal of Economic and Business Review, 2(8), 90–97. https://eprajournals.com/IJES/article/9339/abstract

Anoop, P., Parab, N., & Reddy, Y. V. (2018). Analyzing the impact of demonetization on the Indian stock market: Sectoral evidence using GARCH model. Australasian Accounting, Business and Finance Journal, 12(2), 104–116. https://doi.org/10.14453/aabfj.v12i2.7

Aravind, M. (2017). The dynamic linkage among sectoral indices: Evidence from the Indian stock market. Rajagiri Management Journal, 11(2), 3–20.

Asal, M. (2011). The impact of Euro on sectoral equity returns and portfolio risk. International Advances in Economic Research, 17(2), 119–133. https://doi.org/10.1007/s11294-011-9292-5

Babu, M., Gayathri, J., Indhumathi, G., & Hariharan, C. (2019). Demonetization announcement and price movement of Indian sectoral indices. International Journal of Recent Technology and Engineering (IJRTE), 8(2S6), 608–611. https://doi.org/10.35940/ijrte.B1116.0782S619

Bagirov, M., & Mateus, C. (2022). Petroleum prices and equity sector returns in petroleum exporting and importing countries: An analysis of volatility transmissions and hedging. Applied Economics, 54(23), 2610–2626. https://doi.org/10.1080/00036846.2021.1990846

Balli, F., & Balli, H. O. (2011). Sectoral equity returns in the Euro region: Is there any room for reducing the portfolio risk? Journal of Economics and Business, 63(2), 89–106. https://doi.org/10.1016/j.jeconbus.2010.11.001

Barua, B., & Barua, S. (2021). COVID-19 implications for banks: Evidence from an emerging economy. SN Business & Economics, 1, Article 19. https://doi.org/10.1007/S43546-020-00013-W

Batra, L., & Taneja, H. C. (2020). Evaluating volatile stock markets using information theoretic measures. Physica A: Statistical Mechanics and Its Applications, 537, 122711. https://doi.org/10.1016/j.physa.2019.122711

Belhassine, O., & Ben Bouzid, A. (2019). Further insights into the oil and equity market relationship. Studies in Economics and Finance, 36(2), 291–310. https://doi.org/10.1108/SEF-12-2017-0349

Bellelah, M. A., Bellelah, M. O., Ben Ameur, H., & Ben Hafsia, R. (2017). Does the equity premium puzzle persist during financial crisis? The case of the French equity market. Research in International Business and Finance, 39(Part B), 851–866. https://doi.org/10.1016/j.ribaf.2015.02.018

Bhatia, P., & Gupta, P. (2020). Sub-prime crisis or COVID-19: A comparative analysis of volatility in Indian banking sectoral indices. FIIB Business Review, 9(4), 286–299. https://doi.org/10.1177/2319714520972210

Bouri, E., Kanjilal, K., Ghosh, S., Roubaud, D., & Saeed, T. (2021). Rare earth and allied sectors in stock markets: Extreme dependence of return and volatility. Applied Economics, 53(49), 5710–5730. https://doi.org/10.1080/00036846.2021.1927971

Cao, D., Long, W., & Yang, W. (2013). Sector indices correlation analysis in China's stock market. Procedia Computer Science, 17, 1241–1249. https://doi.org/10.1016/j.procs.2013.05.158

Cappiello, L., Engle, R. F., & Sheppard, K. (2006). Asymmetric dynamics in the correlations of global equity and bond returns. Journal of Financial Econometrics, 4(4), 537–572. https://doi.org/10.1093/jjfinec/nbl005

Chellasamy, P., & Anu, K. M. (2017). Impact of demonetisation on Indian stock market: With special reference to sectoral indices in National Stock Exchange of India. IOSR Journal of Economics and Finance (IOSR-JEF), 8(3), 51–54. https://doi.org/10.9790/5933-0803015154

Chittedi, K. R. (2015). Financial crisis and contagion effects to Indian stock market: 'DCC– GARCH' analysis. Global Business Review, 16(1), 50–60. https://doi.org/10.1177/0972150914553507

Civcir, I., & Akkoç, U. (2021). Dynamic volatility linkages and hedging between commodities and sectoral stock returns in Turkey: Evidence from SVAR-cDCC-GARCH model. International Journal Finance & Economics, 26(2), 1978–1992. https://doi.org/10.1002/ijfe.1889

Costa, A., Matos, P., & da Silva, C. (2022). Sectoral connectedness: New evidence from US stock market during COVID-19 pandemics. Finance Research Letters, 45, 102124. https://doi.org/10.1016/j.frl.2021.102124

Curto, J. D., & Serrasqueiro, P. (2022). The impact of COVID-19 on S&P500 sector indices and FATANG stocks volatility: An expanded APARCH model. Finance Research Letters, 46(Part A), 102247. https://doi.org/10.1016/j.frl.2021.102247

Darjana, D., Wiryono, S. K., & Koesrindartoto, D. P. (2022). The COVID-19 pandemic impact on banking sector. Asian Economics Letters, 3(3). https://doi.org/10.46557/001C.29955

Degiannakis, S., Filis, G., & Floros, C. (2013). Oil and stock returns: Evidence from European industrial sector indices in a time-varying environment. Journal of International Financial Markets, Institutions and Money, 26, 175–191. https://doi.org/10.1016/j.intfin.2013.05.007

Demirgüç-Kunt, A., Pedraza, A., & Ruiz-Ortega, C. (2021). Banking sector performance during the COVID-19 crisis. Journal of Banking & Finance, 133, 106305. https://doi.org/10.1016/j.jbankfin.2021.106305

Dhal, S. (2009). Global crisis and the integration of India's stock market. Journal of Economic Integration, 24(4), 778–805. https://doi.org/10.11130/jei.2009.24.4.778

Dharani, M., Hassan, M. K., Rabbani, M. R., & Huq, T. (2022). Does the Covid-19 pandemic affect faith-based investments? Evidence from global sectoral indices. Research in International Business and Finance, 59, 101537. https://doi.org/10.1016/j.ribaf.2021.101537

El Jebari, O., & Hakmaoui, A. (2020). An analysis of major Moroccan domestic sectors interdependencies and volatility spillovers using multivariate GARCH models. International Journal of Computational Economics and Econometrics, 10(3), 291–307. https://doi.org/10.1504/IJCEE.2020.108392

Elhini, M., & Hammam, R. (2021). The impact of COVID-19 on the Standard & Poor 500 index sectors: A multivariate generalized autoregressive conditional heteroscedasticity model. Journal of Chinese Economic and Foreign Trade Studies, 14(1), 18–43. https://doi.org/10.1108/JCEFTS-08-2020-0049

Elyasiani, E., Mansur, I., & Odusami, B. (2013). Sectoral stock return sensitivity to oil price changes: A double-threshold FIGARCH model. Quantitative Finance, 13(4), 593–612. https://doi.org/10.1080/14697688.2012.721562

Engle, R. (2002). Dynamic conditional correlation: A simple class of multivariate generalized autoregressive conditional heteroskedasticity models. Journal of Business & Economic Statistics, 20(3), 339–350. https://doi.org/10.1198/073500102288618487

Gabauer, D. (2020). Volatility impulse response analysis for DCC-GARCH models: The role of volatility transmission mechanisms. Journal of Forecasting, 39(5), 788–796. https://doi.org/10.1002/for.2648

Guha, B., Dutta, A., & Bandyopadhyay, G. (2016). Measurement of risk vs return of Indian sectoral indices. Journal of Advanced Management Science, 4(2), 106–111. https://doi.org/10.12720/joams.4.2.106-111

Gupta, H., & Jaiswal, K. K. (2017). An empirical investigation of changing trend patterns of foreign direct investment (FDI) in India. Indian Journal of Finance, 11(12), 43–59. https://doi.org/10.17010/IJF/2017/V11I12/119941

Guru, B. K., & Das, A. (2021). COVID-19 and uncertainty spillovers in Indian stock market. MethodsX, 8,101199. https://doi.org/10.1016/j.mex.2020.101199

Hasnat, T. (2021). Infrastructure equity and firm performance in India. Millennial Asia, 12(1), 97–115. https://doi.org/10.1177/0976399620948318

He, Q., Liu, J., Wang, S., & Yu, J. (2020). The impact of COVID-19 on stock markets. Economic and Political Studies, 8(3), 275–288. https://doi.org/10.1080/20954816.2020.1757570

Jain, P., & Sehgal, S. (2019). An examination of return and volatility spillovers between mature equity markets. Journal of Economics and Finance, 43(1), 180–210. https://doi.org/10.1007/s12197-018-9442-1

Jiun, R. C. (2019). Stock market volatility in Malaysia sectoral indices during the general election. Jurnal Ekonomi Malaysia, 53(3). https://doi.org/10.17576/JEM-2019-5303-04

John, J. K., Amudha, R., & Sudhahar, J. C. (2019). Propinquity market behavior of Nifty and sectoral indices of NSE. International Journal of Recent Technology and Engineering (IJRTE), 7(6), 1820–1829. https://www.ijrte.org/wp-content/uploads/papers/v7i6/F2894037619.pdf

Kaur, G., Bordoloi, S., & Rajesh, R. (2011). An empirical investigation on the inter-sectoral linkages in India. Journal of Income & Wealth, 33(1), 53–65.

Khalid, H. M., Farooq, S., Liaqat, F., & Naeem, M. (2021). Assessment of return and volatility spillover across sectors' indices: Evidence from Pakistan stock exchange. International Journal of Monetary Economics and Finance, 14(5), 477–496. https://doi.org/10.1504/IJMEF.2021.118281

Kumar, D. (2014). Return and volatility transmission between gold and stock sectors: Application of portfolio management and hedging effectiveness. IIMB Management Review, 26(1), 5–16. https://doi.org/10.1016/j.iimb.2013.12.002

Kyriazis, Î. A. (2021). Investigating the nexus between European major and sectoral stock indices, gold and oil during the COVID-19 pandemic. SN Business & Economics, 1(4), Article 57. https://doi.org/10.1007/s43546-021-00060-x

Majumder, S. B., & Nag, R. N. (2018). Shock and volatility spillovers among equity sectors of the national stock exchange in India. Global Business Review, 19(1), 227–240. https://doi.org/10.1177/0972150917713290

Mallikarjuna, M., & Rao, R. P. (2017). Volatility behaviour in selected sectoral indices of Indian stock markets. Asian Journal of Research in Banking and Finance, 7(2), 23–34. https://doi.org/10.5958/2249-7323.2017.00005.0

Manimaran, M., & Anand, N. V. (2017). Analysis on return, risk and volatility of sectoral indices against BSE. International Journal of Current Research and Modern Education (IJCRME), 2(1), 265–269. http://ijcrme.rdmodernresearch.com/wpcontent/ uploads/2017/11/234.pdf

Mensi, W., Hammoudeh, S., Sensoy, A., & Yoon, S.-M. (2017). Analyzing dynamic linkages and hedging strategies between Islamic and conventional sector equity indexes. Applied Economics, 49(25), 2456–2479. https://doi.org/10.1080/00036846.2016.1240349

Mishra, A. (2019). Foreign exchange, gold, and real estate markets in India: An analysis of return volatility and transmission. Indian Journal of Finance, 13(7), 50–64. https://doi.org/10.17010/IJF/2019/V13I7/145535

Mittal, S., & Sharma, D. (2021). The impact of COVID-19 on stock returns of the Indian healthcare and pharmaceutical sector. Australasian Accounting, Business and Finance Journal, 15(1), 5–21. https://doi.org/10.14453/aabfj.v15i1.2

Mohania, S., & Mainrai, G. (2020). The COVID-19 pandemic and its impact on the banking industry – A case of National Bank Ltd. Indian Journal of Finance, 14(8–9), 80–89. https://doi.org/10.17010/IJF/2020/V14I8-9/154950

Mouna, A., & Anis, J. (2017). Stock market, interest rate and exchange rate risk effects on non financial stock returns during the financial crisis. Journal of the Knowledge Economy, 8(3), 898–915. https://doi.org/10.1007/s13132-015-0301-4

Muthukamu, M., & Amudha, R. (2020). The rollout of GST and its impact on the auto sector stocks of National Stock Exchange. Indian Journal of Finance, 14(12), 25–39. https://doi.org/10.17010/IJF/2020/V14I12/156482

Pandey, V. (2023). Financial contagion between crude oil, gold, and equity sectors in India during COVID. Indian Journal of Finance, 17(3), 20–36. https://doi.org/10.17010/IJF/2023/V17I3/172670

Patra, T., & Poshakwale, S. S. (2008). Long-run and short-run relationship between the main stock indexes: Evidence from the Athens stock exchange. Applied Financial Economics, 18(17), 1401–1410. https://doi.org/10.1080/09603100701704314

Perumandla, S., & Kurisetti, P. (2018). Time-varying correlations, causality, and volatility linkages of Indian commodity and equity markets : Evidence from DCC - GARCH. Indian Journal of Finance, 12(9), 21–40. https://doi.org/10.17010/IJF/2018/V12I9/131558

Rizvi, S. A., & Arshad, S. (2018). Understanding time-varying systematic risks in Islamic and conventional sectoral indices. Economic Modelling, 70, 561–570. https://doi.org/10.1016/j.econmod.2017.10.011

Samineni, R. K., Puppala, R. B., Muthangi, R., & Kulapathi, S. (2020). Expiration-day effects on index futures: Evidence from Indian market. The Journal of Asian Finance, Economics and Business, 7(11), 95–100. https://doi.org/10.13106/jafeb.2020.vol7.no11.095

Sarkar, A., Chakrabarti, G., & Sen, C. (2009). Indian stock market volatility in recent years: Transmission from global market, regional market and traditional domestic sectors. Journal of Asset Management, 10(1), 63–71. https://doi.org/10.1057/jam.2008.29

Seth, N., & Singhania, M. (2019). Volatility in frontier markets: A multivariate GARCH analysis. Journal of Advances in Management Research, 16(3), 294–312. https://doi.org/10.1108/JAMR-02-2018-0017

Shanmugasundram, G., & Benedict, D. J. (2013). Volatility of the Indian sectoral indices - A study with reference to National Stock Exchange. International Journal of Marketing, Financial Services & Management Research, 2(8), 1–11.

Shiferaw, Y. A. (2019). Time-varying correlation between agricultural commodity and energy price dynamics with Bayesian multivariate DCC-GARCH models. Physica A: Statistical Mechanics and Its Applications, 526, 120807. https://doi.org/10.1016/J.PHYSA.2019.04.043

Singhal, S., & Ghosh, S. (2016). Returns and volatility linkages between international crude oil price, metal and other stock indices in India: Evidence from VAR-DCC-GARCH models. Resources Policy, 50, 276–288. https://doi.org/10.1016/j.resourpol.2016.10.001

So, M. K., Chu, A. M., & Chan, T. W. (2021). Impacts of the COVID-19 pandemic on financial market connectedness. Finance Research Letters, 38, 101864. https://doi.org/10.1016/J.FRL.2020.101864

Tiwari, A. K., Pathak, R., DasGupta, R., & Sadorsky, P. (2021). Modelling dependence and systemic risk between oil prices and BSE sectoral indices using stochastic copula and CoVar, ΔCoVar and MES approaches. Applied Economics, 53(58), 6770–6788. https://doi.org/10.1080/00036846.2021.1949430

Trabelsi, N., Gozgor, G., Tiwari, A. K., & Hammoudeh, S. (2021). Effects of price of gold on Bombay stock exchange sectoral indices: New evidence for portfolio risk management. Research in International Business and Finance, 55, 101316. https://doi.org/10.1016/j.ribaf.2020.101316

Yadav, M. P., & Pandey, A. (2019). Volatility spillover between Indian and MINT stock exchanges: Portfolio diversification implication. The Indian Economic Journal, 67(3–4), 299–311. https://doi.org/10.1177/0019466220947501

Yuksel, E., & Bayrak, O. T. (2012). Cyclical behavior of stock exchange index by sectors: A case from Turkey. Procedia - Social and Behavioral Sciences, 62, 947–951. https://doi.org/10.1016/j.sbspro.2012.09.161

Zehri, C. (2021). Stock market comovements: Evidence from the COVID-19 pandemic. The Journal of Economic Asymmetries, 24, e00228. https://doi.org/10.1016/J.JECA.2021.E00228

Zhang, D., Hu, M., & Ji, Q. (2020). Financial markets under the global pandemic of COVID-19. Finance Research Letters, 36, 101528. https://doi.org/10.1016/J.FRL.2020.101528