Investigating the Systematically Important Equity Sectors in Extreme Conditions: A Case of Johannesburg Stock Exchange

This study examined the ‘too central to fail’ concept in the South African equity sector. We employed the Granger causality framework and PageRank algorithm to generate the centrality scores of the sectors on the Johannesburg Stock Exchange under extreme market conditions. Using the realized volatilities of sectoral returns for the full sample period (3 January 2006–31 December 2021), as well as during the global financial crisis (GFC), European debt crisis (EDC), COVID-19 pandemic, and US–China trade war sub-periods, we analyzed the sectors’ interconnections and calculated each sector’s centrality score across the entire sample and under different extreme market conditions. This allowed us to rank sectors relative to their centrality scores. The results indicate that, in the full sample, the insurance sector has the highest PageRank centrality score, suggesting it is too central to fail. This implies that the insurance sector acts as a systemic receiver of risks and provides stability within the network of sectors. However, the sub-period analyses reveal that General Industrial and Automobiles emerged as the key sectors with the highest PageRank centrality scores, and shocks from other sectors can disproportionately affect these industries during crisis periods. Underperformance in these sectors could have destabilizing effects on the South African economy. The findings have significant implications for regulators and policymakers, portfolio and fund managers, local and international investors, and researchers in the field of finance.