Asymmetric Return Connectedness Among Indian Equity Sectors: Insights from Recent Global Disruptions

Abstract

This article aims to study asymmetric shock transmission among India’s National Stock Exchange sectoral indexes before and amid the COVID-19 crisis and the Russian–Ukraine feud using an asymmetric time-varying parameter vector autoregressive connectedness technique. The daily closing price of equity sector indexes from 1 January 2018 to 31 March 2023 were used. The research reveals strong sectoral return interconnectedness, with negative returns spillover dominating the assessment period. COVID-19 substantially impacted connectedness more than the Russian–Ukraine feud. The sectors such as bank, private bank and financial services were net transmitters of risk, and information technology was the net recipient of risk throughout the assessment period, indicating these sectors are not much affected by these crises. Sector return spillover patterns were similar during the epidemic and the Russian–Ukraine dispute, except for the oil and gas and metal sectors, which shifted roles. These findings suggest that policymakers must recognize and assess the peculiarities of industries that are high-risk transmitters when formulating strategies to prevent market failure or mitigate risk transmission to others. Investors may benefit from recognizing industries that operate as risk transmitters and receivers to create effective risk-mitigation investment strategies amid turbulent times.