Cross-Sector Risk Spillover Analysis: A Study Using DY & BK Spillover Index

Abstract

The purpose of this thesis is to deepen the understanding of risk spillover between sectors, an area with limited prior research. It aims to provide an overview of how sectors are connected and interacting with each other. This will be achieved by using the DY and BK spillover indices, these models have been used in prior studies but mostly when regional indices have been studies. The dataset includes eleven different sectors and a total of 4,069 companies between 2014 to 2023. The results reveal significant variations in risk spillover, heavily influenced by the specific sectors involved. These findings highlight the complexity of inter-sector interaction and suggest that traditional diversification strategies may not be as effective as previously assumed. This study lays a foundation for new research avenues in risk spillover and Environmental, Social, and Governance (ESG) factors, providing crucial insights for investors and policymakers. Future research should address dataset limitation by extending the time frame and adjusting models to account for sector-specific characteristics. Additionally, incorporating a benchmark group to compare ESG and non-ESG companies could further elucidate the impact of ESG factors. This thesis contributes valuable insights into sector interactions, opening up possibilities for further exploration in this emerging field.