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Volatility Spillover among Japanese Sectors in Response to COVID-19

Author

Listed:
  • Hideto Shigemoto

    (Graduate School of Science and Technology, Kwansei Gakuin University, 2-1 Gakuen, Sanda 669-1337, Hyogo, Japan)

  • Takayuki Morimoto

    (School of Science, Kwansei Gakuin University, 2-1 Gakuen, Sanda 669-1337, Hyogo, Japan)

Abstract

This study clarifies how risks spread across economic sectors and indicates the sectors that are the most affected to help investors with asset allocation and to support them in risk management. Although the Japanese stock market is one of the relatively large global stock markets, no studies have explored volatility spillovers among its sectors. Using the forecast error variance decomposition of the vector autoregressive model, this study examines the volatility spillovers among sectors classified on the Tokyo Stock Exchange. Our findings show that the pattern of volatility spillovers across sectors in the Japanese stock market differs between a few years preceding the coronavirus disease 2019 (pre-COVID-19), from 2014 to 2019, and during the COVID-19 period, in 2020. Although the energy resources and bank sectors are risk receivers in the pre-COVID-19 period, these sectors are risk transmitters during the COVID-19 period. We also find that volatility spillovers in the Japanese stock market are mainly driven by negative realized semivariance. These results are useful for asset allocation and risk management.

Suggested Citation

  • Hideto Shigemoto & Takayuki Morimoto, 2022. "Volatility Spillover among Japanese Sectors in Response to COVID-19," JRFM, MDPI, vol. 15(10), pages 1-21, October.
    • Handle: RePEc:gam:jjrfmx:v:15:y:2022:i:10:p:480-:d:948531
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    References listed on IDEAS

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    1. Ahmad, Wasim & Hernandez, Jose Arreola & Saini, Seema & Mishra, Ritesh Kumar, 2021. "The US equity sectors, implied volatilities, and COVID-19: What does the spillover analysis reveal?," Resources Policy, Elsevier, vol. 72(C).
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