Volatility Spillovers Between Oil Prices and Sectoral Stock Indices in Türkiye: Evidence from VAR-Diagonal BEKK-GARCH

Abstract

This study assesses the volatility spillovers between Brent crude oil prices and main sectoral index returns on Borsa Istanbul using daily data from January 2, 2015, to 28 July 2025. Unlike previous studies that focus on aggregate market indices, this research provides a granular sectoral analysis to uncover hidden heterogeneities in volatility spillovers. The VAR(1)-Diagonal BEKK-GARCH(1,1) model is specifically employed because it effectively captures dynamic conditional correlations and simultaneous volatility spillovers while ensuring the positive definiteness of the covariance matrix. Findings reveal that oil fluctuations substantially affect the Turkish market, with effects differing across sectors. The technology sector is most responsive to short-term shocks, whereas the services and industrial sectors exhibit more persistent volatility. The financial sector is also significantly influenced, though its persistence is less pronounced. The study’s original contribution lies in identifying a structural transformation in the energy-finance nexus, demonstrating that COVID-19-driven shifts fundamentally altered how energy shocks propagated through emerging market sectors. Furthermore, the results indicate that volatility spillovers intensified in magnitude following the pandemic. These findings provide evidence that sectoral dependence on energy and unique structural characteristics shape the transmission mechanisms of oil price shocks. For policymakers, enhancing energy diversification and renewable investments is vital. Market participants should develop sector-specific diversification strategies; technology-heavy portfolios require active short-term hedging, whereas industrial investments necessitate long-term risk assessment. By mapping the distinct persistence levels of each sector, this research offers a novel, evidence-based framework for targeted macroprudential supervision in emerging economies.