Unveiling the dynamic linkages and Hedging between Indian Sectoral Indices and Oil, Gold and Cryptocurrency in times of crisis episodes

Abstract

The international investment trends have shifted the focus from the broad market to specific sectors. The inflow of Foreign Institutional Investors (FIIs) has integrated the Indian market with global markets, leading to increased market volatility, particularly during crises, due to global risk transmission. Therefore, the present study explores the dynamic interconnectedness between major alternative investments, the Indian benchmark index, and its sectoral indices during major crises, such as the global health crisis and the geopolitical conflict. By exploring the hedging and diversification benefits of gold, oil, OVX, and cryptocurrencies in the Indian stock market. By utilizing TVP-VAR, the SPBSX, SPBCD, SPBC, SPBFS, and SPBI consistently transmitter and SPBF, SPBH, SPBIT, and SPBT act as recipients of volatility. Gold is the most effective hedge, whereas oil and CCI.30 are the least effective hedges against the equity sectors. Our research holds significance for investors and managers seeking to enhance risk-adjusted returns through diversification strategies. This is the first study to provide diversification and hedging by exploring the dynamic connectedness between major alternative investments and the Indian sectoral indices during two distinct crises.