Insight of Indian sector indices for the post subprime crisis period: a vector error correction model approach

Vardhan, Harsh and Vij, Madhu and Sinha, Pankaj (2013): Insight of Indian sector indices for the post subprime crisis period: a vector error correction model approach.

Abstract

The empirical study highlights importance of usage of sector indices which provides insight for sector specific investment strategies and direction for suitable policy formulation. It investigates long run and short run relationships between eight identified sector indices and Sensex for the post subprime period from 04/09/2009 to 31/12/2010 using Vector Error Correction Model (VECM). Limited lead - lag short run relationships between sector indices were observed. Long term relationships between sector indices were determined by the usage of VECM indicating minimal benefits from diversifying investments to different sectors. Banking index played a predominant and integrating role in moving other indices. During this period of recovery; most sectors were protected and provided marginally better returns due to robust Banking policy. Realty & Metal were other significant drivers influencing remaining sectors contemporaneously.

• Item Type: MPRA Paper
• Language: English
• Keywords: Vector Error Correction Model (VECM), Sector Index, Generalized Impulse Response Function (GIRF).
• Subjects: B - History of Economic Thought, Methodology, and Heterodox Approaches > B2 - History of Economic Thought since 1925 > B22 - Macroeconomics; C - Mathematical and Quantitative Methods > C0 - General; C - Mathematical and Quantitative Methods > C0 - General > C01 - Econometrics; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E60 - General; G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation

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