Return and Volatility Spillovers Among the Thematic Indices in India

Abstract

The article attempts to explore the interlinkages among the Nifty thematic indices and their portfolio implications. First, we examine the return and volatility spillovers among eight Nifty thematic indices, namely Energy, Infrastructure, MNC, PSE, Services Sector, Aditya Birla Group, Mahindra Group and Tata group using the vector autoregressive (VAR (1)) asymmetric BEKK–GARCH model for the period 4 January 2010–28 March 2020. Second, the estimation results are used to calculate and analyse the optimal portfolio weights, hedge ratios and hedging effectiveness. We find significant evidence of return and volatility spillover. Moreover, the spillovers are found to be asymmetric in few cases. The optimal portfolio weight favours the MNC and Services sectors.