Net Spillover Effects of Industry Indices’ Return and Volatility

This paper tries to examine spillover effects and traits across sectors of the Korea stock market using the spillover index proposed by Diebold and Yilmaz (2012). Main empirical results found are as follows: 1) By estimating the net spillover index, across sectors, both the spillover of the industry stock returns and the spillover of volatilities are observed. 2) The order of the magnitude of giving spillover effects are as follows; services, transportation and warehouse, construction, manufacturing, distribution, communication, electricity and gas, and finance. 3) The order of the magnitude of giving to others effects of the return is found as follows; KOSPI, manufacturing, distribution, finance, services, transportation and warehouse, electricity and gas, construction, and communication. 4) Based on the estimation of time varying net spillover of the volatility. it is confirmed that KOSPI and manufacturing industries’ volatilities consistently lead other industries. 5) The magnitude of the spillover index shows highest during 2008 global finance crisis. Informations reported here must be useful for new portfolio investment strategy and risk management taking care of spillover effects across sectors.