Dynamic connectedness and spillovers across sectors: Evidence from the Indian stock market

This paper explores stock market sectoral connectedness for the emerging market economy of India. We use the time-varying parameter vector autoregressive dynamic connectedness of Antonakakis and Gabauer (2017). Results show that the stock market sectoral connectedness varies across time. Connectedness is strongest among sectors during the 2008 crisis, the double-digit inflation and stock market crash of 2011, national elections of 2014, and the historic demonetization of 2016. In addition, consumers’ spending, industry, finance, and basic materials appear to be net transmitters of shocks. By contrast, information technology, fast moving consumer goods, healthcare, and telecommunications are net receivers of shocks. This paper can help formulate policies aiming at alleviating sectoral imbalances and promoting balanced growth, and also benefit investors with devising optimal portfolio diversification strategies.