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Purpose This study explores the dynamic interrelationships among key sectoral indices within Islamic finance energy, industrials, technology and finance. The purpose of this study is to identify the direction and magnitude of spillover effects, determine which sectors act as net transmitters or receivers of shocks and assess their exposure to external influences. This research specifically investigates how these interactions evolve over time, particularly during periods of market crises. Design/methodology/approach The study uses a Time-Varying Parameter Vector Autoregressive (TVP-VAR) model to analyze weekly data from 2015 to 2024, covering five major Islamic sectoral indices: the World Islamic Energy Sector (WIES), the World Islamic Industrials Sector, the World Islamic Information Technology Sector, the Emerging Markets Islamic Industrials (EMII) and the Emerging Islamic Financials (EIFS). The model uses a 20-step-ahead Generalized Forecast Error Variance Decomposition to compute both average and time-varying connectedness measures, with separate analyses for periods of positive and negative returns. Findings The results indicate that the EMII sector is a dominant transmitter of shocks, while EIFS and WIES primarily absorb these shocks. In addition, the total connectedness is notably higher during market downturns, highlighting the asymmetric nature of spillover effects in Islamic financial markets. The industrial sectors exhibit significant volatility transmission, particularly during crises, while the energy and finance sectors tend to act more passively as shock absorbers. Originality/value This study contributes to the literature on Islamic finance by offering novel insights into the time-varying dynamics of sectoral volatility spillovers. It extends existing research by focusing on sector-specific spillover effects within Islamic financial markets, particularly during crises such as the Russia–Ukraine conflict and the COVID-19 pandemic. The application of the TVP-VAR model introduces a more adaptive framework, providing valuable implications for portfolio diversification, risk management and policy formulation, especially in the context of Islamic financial markets.
Gürsoy et al. (Thu,) studied this question.