Financial contagion during COVID–19 crisis

Md Akhtaruzzaman, Sabri Boubaker and Ahmet Sensoy

Finance Research Letters, 2021, vol. 38, issue C

Abstract: This study examines how financial contagion occurs through financial and nonfinancial firms between China and G7 countries during the COVID–19 period. The empirical results show that listed firms across these countries, financial and non-financial firms alike, experience significant increase in conditional correlations between their stock returns. However, the magnitude of increase in these correlations is considerably higher for financial firms during the COVID-19 outbreak, indicating the importance of their role in financial contagion transmission. They also show that optimal hedge ratios increase significantly in most cases, implying higher hedging costs during the COVID-19 period.

Keywords: COVID–19; financial contagion; spillover index; financial firms; nonfinancial firms; hedge ratios (search for similar items in EconPapers)
JEL-codes: G15 G20 G21 G22 G23 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (72)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:38:y:2021:i:c:s1544612320305754

DOI: 10.1016/j.frl.2020.101604

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