ABSTRACT
Investigating the mechanisms of risk transmission within economic sectors is vital for comprehending the interconnectedness among industries. This study aims to examine the channels of risk propagation by analyzing volatility spillovers within eleven sectors of Thailand's stock market from January 2012 to December 2021. The sectoral volatility is estimated using the ARMA-GARCH technique. The paper utilizes the connectedness measures developed by Diebold and Yilmaz (2009, 2012, 2014) to examine changes in sectoral connectedness and identify significant trends in specific sectors before and during the COVID-19 pandemic. The result is that total volatility connectedness has increased significantly during the COVID-19 pandemic, indicating a significant rise in systematic risk. The Petrochemical and Chemical sector became the largest transmitter during the COVID-19 pandemic. These two findings are consistent with several studies on sectoral connectedness during the COVID-19 situation. In addition, some certain sectors shifted their role from a net transmitter to a net receiver and vice versa. Investors should be aware of the impact of an increase in systematic risk and the switching roles of net transmitters and net receivers when selecting hedging strategies. The Banking sector and the Finance and Security sector did not transmit much volatility to the market. They were net receivers for both the pre-COVID and the COVID periods. The Finance and Security sector was the largest receiver of volatility shocks during the pandemic. This raised concerns about the future stability of Thailand's financial sector. Overall, the results of this study contribute to an understanding of the changes in sectoral connectedness and risk spillovers in Thailand's stock exchange as a result of the COVID-19 situation.