The stock market and banking sector facilitate the allocation of funds, supporting both short-term and long-term capital distribution, which in turn drives economic activity. The study explores the dynamics of return and volatility spillovers between public and private sector banks in India.
This study employed the EGARCH model, utilising time-series data from April 1, 2008, to March 31, 2024, sourced from Investing.com.
The results reveal that Indian Overseas Bank experiences the highest degree of volatility transmission, while Citibank shows the lowest. Additionally, the study finds that positive shocks tend to create more volatility than negative shocks for public-sector banks. In contrast, negative shocks lead to greater volatility for private-sector banks. The analysis also reveals both unidirectional and bidirectional return and volatility spillovers between public and private sector banks.
These findings underscore the banking sector’s vulnerability to contagion effects, highlighting the need for financial institutions and policymakers to implement strategies that mitigate systemic risks. It is crucial to adopt enhanced risk management practices, enforce appropriate regulatory measures, and maintain ongoing monitoring of financial interconnections to mitigate the impact of volatility transmission and ensure the stability of the banking sector.
This study contributes to the existing literature by providing a comprehensive examination of return and volatility spillovers between public and private sector banks in India, utilising an extensive time-series dataset spanning 16 years (2008–2024). Employing advanced econometric models, the study will provide novel insights into market integration within the Indian financial sector and contribute to the broader literature on volatility spillovers in emerging economies.
