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

P Vairasigamani and S Amilan

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.