Volatility Spillovers and Network Connectedness Among Saudi Stock Market Sectors

Despite the growing importance of the Saudi capital market, sectoral-level volatility connectedness within Tadawul remains largely unexplored. This study contributes to the literature by applying the Diebold–Yılmaz framework to examine volatility connectedness across 16 Tadawul sectors over the period January 2017 to December 2024. Total, directional, and net pairwise volatility spillovers are quantified from daily closing prices using a VAR(4) model combined with generalized forecast error variance decomposition. The static analysis reveals a high overall connectedness of 80.49%, indicating that cross-sectoral spillovers account for the majority of volatility fluctuations. Materials, Transportation, and Real Estate Management and Development are identified as the dominant net transmitters of volatility, while Utilities and Telecommunication Services are persistent net receivers. The dynamic analysis shows that sectoral connectedness is highly time-varying, peaking at 93.70% during the COVID-19 period, with additional episodes of elevated spillovers during 2022–2023. The network analysis reveals that the strongest pairwise linkages exist among Materials, Transportation, Real Estate Management and Development, and Banks, forming the core of the spillover network. While block-bootstrap results reinforce the identification of dominant net transmitters and receivers, they reveal substantial uncertainty in the rank-order of intermediate sectors, necessitating a more nuanced interpretation. The results are robust to alternative rolling window sizes and forecast horizons. These findings have important implications for portfolio diversification, sectoral risk monitoring, and macroprudential policy in the Saudi capital market.