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Abstract This study examines the Japanese stock market connectedness across different sectors, focusing on both the time and frequency dimensions. The dataset used spans from January 1999 to April 2022 and employs various methodologies, including time‐varying parameter vector autoregressions, TVP‐VAR frequency dependency, and Quantile coherency. The empirical findings reveal that cyclical or aggressive stocks predominantly act as net transmitters of shocks across sectors. Moreover, short‐term spillovers are more significant compared to intermediate‐term spillovers, indicating that Japanese sectors are more pronounced to market shocks in the short run. The spillover effects are also asymmetric and vary over time. Additionally, the real estate sector exhibits diversification benefits across different time horizons, while the energy sector provides protection primarily in the short run. This research contributes to the development of financial policies aimed at reducing sectoral imbalances and promoting stable growth. Furthermore, it offers insights for investors seeking to devise optimal portfolio diversification strategies.
Khoury et al. (Tue,) studied this question.