Title: Existence of lead-lag relationship among sectoral indices: evidence from the Indian capital market

Authors: Satyaban Sahoo; Sanjay Kumar

Addresses: Manipal School of Commerce and Economics, Manipal Academy of Higher Education, Manipal – 576104, India ' Department of Management, Central University of Rajasthan, Kishangarh, Ajmer, Rajasthan, India

Abstract: The study examines the lead-lag relationship among six sectoral indices of the Indian capital market. The Granger causality test reveals that unidirectional causality originates from oil and gas sector index to the auto, IT, financial service, and bank sector indices; similarly, the FMCG sector index causes variation in the auto, financial services and banking sector indices. The IRF and VDC analysis also confirm these findings of the Granger causality test. Among all six sectoral indices, oil and gas index is leading, and the financial services index is lagging in the Indian capital market. Investors should study the behaviour of the oil and gas index to maximise return and decrease risk, as it is dominating the other indices. The evident lead-lag relationship among the sectoral indices would assist the investors in portfolio diversification considering different sectors.

Keywords: Granger causality test; impulse response function; IRF; lead-lag relationship; sectoral index; variance decomposition; VDC.

DOI: 10.1504/AAJFA.2025.145968

Afro-Asian Journal of Finance and Accounting, 2025 Vol.15 No.3, pp.325 - 344

Accepted: 21 Jun 2023
Published online: 01 May 2025 *

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