In today’s complex financial world, it is important to have strong knowledge of “spillover effect” of macroeconomic events, i.e., how they affect the banking sector. “Banking sector” in this context includes not only traditional banks but also financial subsidiaries such as insurance, non-banking financial institutions and microfinance organisations. This knowledge helps them make sound risk management decisions. This study aims to detect the spillover effect of macroeconomic events on the India’s banking sector and its subsidiaries by considering stocks listed on the Bombay Stock Exchange (BSE). For this, the first goal is to review existing research and critically appraise previous studies’ findings to find critical knowledge gaps.

The second goal is to assess banking and other financial subsidiaries’ interconnectedness using the TVP-VAR model. Collecting the data from BSE for 1st January 2005 to 31st December 2023, and for variables like opening price, closing price, macroeconomic indicators (inflation, GDP, or exchange rate), and financial ratios (P/E or ROI), the study initially determines the spillover effect among banking sector companies. Following this, the interconnectedness between banking and other financial subsidiaries too will be examined using R software. The findings of the study will reveal the company that held a dominant position in the banking sector during major macroeconomic events from 2005-2023 (like the oil crisis of 2007, the environmental crisis of 2011, COVID-19, or the Russia-Ukraine war). It also identifies the financial sector (banking or any other financial subsidiaries) which drives the financial status of India amid the crisis.

Goal 1

Review the relevance of spillover effect in stock market analysis

Purpose: The purpose of this goal is to lay the foundation using secondary data on the concepts and elements of this study. Since the main aim of this study is to examine the spillover effect of banking companies stocks on financial services industry stocks, this goal will include a review of:

  • Uses and application of spillover effect analysis
  • Methodologies used for examining spillover effect
  • Banking sector companies and their performance in India for the period 2005-2023

Methodology: A mix of literature review, systematic review and empirical reviews will be used. At the end of the discussion, a conceptual framework will be prepared.

Milestones

To contribute and publish select a pending milestone.

Completed

There are no completed milestones.

Pending
Purpose of spillover effect analysis in financial markets
Systematic review of studies showing spillover effect in financial markets analysis
Theoretical models studying the spillover effect in financial markets analysis
Regulatory framework and macroeconomic sensitivity of the banking and financial services sector of India
Systematic review of the application of TVP-VAR test in spillover effect in stock prices analysis
Conceptual framework for examining spillover effect in banking sector stocks
Major macroeconomic events affecting the banking and financial services sector of India
Goal 2

Assess the spillover effect of India's banking stocks in the financial services sector

Purpose: The purpose of this goal is to empirically assess the spillover effect of banking companies stocks on financial services companies stocks for stocks listed on the BSE for the time period 2005-2023 using TVP-VAR analysis method.

Method: This empirical examination will include the following steps.

  1. Data collection from BSE website for historical stock prices of all companies in Banking and Financial Services industry.
  2. Macroeconomic indicators data (GDP growth rate, interest rates, inflation, exchange rate)- this may be used as the control variables.
  3. Financial ratios of selected companies- this may be used as the control variables.
  4. Performing the assumption tests to establish reliability or validity of data
  5. Applying the TVP-VAR test using R software. This step includes model specification, TVP, estimation, variance decomposition, model evaluation and interpretation
Milestones

To contribute and publish select a pending milestone.

Completed

There are no completed milestones.

Pending
Research Methodology of applying TVP VAR test to study spillover effect
Trend analysis of India’s banking sector stock prices
Stationarity test of banking sector stock prices by for examining spillover effect
Co-integration relationship analysis of macroeconomic factors, financial ratios, and banking sector stock prices
Correlation-based matrix for understanding the relationship between macroeconomic factors and banking sector stock prices
Interconnectedness assessment using TVP VAR for BSE-listed banking stocks after the 2007 oil crisis
Interconnectedness assessment using TVP VAR for BSE-listed banking stocks after the 2011 environmental crisis
Interconnectedness assessment using TVP VAR for BSE-listed banking stocks after the COVID-19pandemic
Interconnectedness assessment using TVP VAR for BSE-listed banking stocks after the 2022 Russia-Ukraine war
Status of spillover effect for banking stocks in the Bombay Stock Exchange
Interconnectedness assessment for BSE listed banking subsidiaries stocks after 2007 oil crisis
Interconnectedness assessment for BSE listed banking subsidiaries stocks after 2011 environmental crisis
Interconnectedness assessment for BSE listed banking subsidiaries stocks after COVID-19 pandemic
Interconnectedness assessment for BSE listed banking subsidiaries stocks after 2022 Russia-Ukraine war
Status of spillover effect for banking subsidiary stocks in the Bombay Stock Exchange
Benefit of stock market spillover effect analysis for banking sector stakeholders