Sectoral Connectedness: New Evidence from US Stock Market during COVID-19 Pandemics

Abstract

We examine volatility connectedness of 11 sectoral indices in the US using daily data from January 01, 2013 to December 31, 2020. We employ the connectedness measures of Diebold and Yilmaz (2009, 2012, 2014), unveiling changes in the US sectoral connectedness and stylized facts regarding specific sectors occurred during the COVID-19 pandemic. Among several results, we find extraordinary increase in connectedness during COVID-19, from earlier stages of international spread to the end of July 2020; considerable changes in pairwise relationships, especially among the upper two deciles. However, in a total net connectedness perspective, there is little evidence of structural changes.

Keywords: COVID-19, Sectoral Connectedness, Volatility Spillover, Portfolio allocation

JEL Classification: C3, G1