Connectedness and Risk Spillovers in Iranian Stock Market: Using TVP-VAR in a Sectoral Analysis

Document Type : Original Article

Authors

Associate professor, Department of Economics, University of Allameh Tabataba’i

Abstract

This paper examines volatility transmission across 10 major sectors in Iranian stock market over the period 10/11/2009 to 10/04/2022 using time-varying parameter vector autoregressive (TVP-VAR). Our findings show that first; the total connectedness index is approximately 54 percent, indicating that volatility spillovers across the Iranian major sectors are substantial. Second; among these 10 sectors, “investment” and “base metal” act as net transmitter of risks while “medicine”, “oil product” and “cement” sectors are the greatest receivers of risk. Third; the evidence reveals the presence of lead-lag effect in the investigated network. The greatest stock market sectors play the role of volatility transmitter to other sectors, while the relatively small sectors have no risk spillovers on major sectors. This paper can provide regulatory suggestions for policymakers and risk management for investors.

Keywords

Journal of Econometric Modelling
Volume 7, Issue 3 - Serial Number 27
February 2022
Pages 95-125

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