An analysis of dynamic connectedness of Borsa İstanbul sector indices and the effect of COVID-19 pandemic

The Total Connectedness Index (TCI) measures the influence one member of the network has on all the others on average. If TCI increases then dependence between the network members and in turn the market risk increases, wheras if TCI decreases then the dependence between the members decreases and hence in turn the market risk decreases. The aim of this thesis is to analyze dynamic connectedness of Borsa İstanbul sector indices over time and also to examine the effect of Covid-19 on the connectedness. To this aim, 25 indices are selected from the relevant BIST sector and subsector indices between the period from 4 February 2013 to 7 December 2020. The analysis is conducted over the closing prices by appling the TVP-VAR methodoly using the statistical software R. Our results show that industrial, financial and services sectors are the largest shock senders to the system. On the other hand, mining, sports, securities investment trusts and insurance sectors are found to be the highest shock recievers in the system. As a result, the overall risk in the markets, as indicated by the Total Connectedness Index level after the onset of the Covid-19 outbreak, has reached historical records in the last few years.