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<p>This work investigates the sectoral connectedness among the major indices in the Indian stock market. This study uses the connectedness approach based on the time-varying parameter-vector autoregression (TVP-VAR) model. Based on the availability, daily data of fourteen major sectoral indices of the Indian stock market from January 3, 2007 to February 28, 2023 has been used for analysis. Connectedness among indices varies significantly in the period of study. The highest (lowest) sectoral connectedness was observed in May 2009 (July 2014). A significant increase in the TCI has been observed following the announcement of COVID-19 as a global pandemic. The analysis also reveals service sector, infrastructure, and financial services are the largest volatility transmitters, while FMCG, consumer durables and pharma are the largest volatility receivers. Investment risk in sectoral indices can be hedged significantly using nifty, gold, and WTI futures. Finally, we assessed the predictive power of the total connectedness index using nifty return and volatility index (VIX). The results are significant at a 1% level. These findings will provide insight for investors, portfolio managers, and others looking to maximize the risk-adjusted returns in the Indian stock market by diversifying their investment portfolio.</p>

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Sectoral connectedness, volatility spillover and hedging opportunities: evidence from Indian stock market

  • 期刊论文

  • 发表日期：

    2025年7月3日

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  • Prince Kumar Maurya,
  • Rohit Bansal,
  • Anand Kumar Mishra

摘要

This work investigates the sectoral connectedness among the major indices in the Indian stock market. This study uses the connectedness approach based on the time-varying parameter-vector autoregression (TVP-VAR) model. Based on the availability, daily data of fourteen major sectoral indices of the Indian stock market from January 3, 2007 to February 28, 2023 has been used for analysis. Connectedness among indices varies significantly in the period of study. The highest (lowest) sectoral connectedness was observed in May 2009 (July 2014). A significant increase in the TCI has been observed following the announcement of COVID-19 as a global pandemic. The analysis also reveals service sector, infrastructure, and financial services are the largest volatility transmitters, while FMCG, consumer durables and pharma are the largest volatility receivers. Investment risk in sectoral indices can be hedged significantly using nifty, gold, and WTI futures. Finally, we assessed the predictive power of the total connectedness index using nifty return and volatility index (VIX). The results are significant at a 1% level. These findings will provide insight for investors, portfolio managers, and others looking to maximize the risk-adjusted returns in the Indian stock market by diversifying their investment portfolio.