Volatility spillovers from the Chinese stock market to the U.S. stock market: The role of the COVID-19 pandemic

Giang Thi Huong Vuong, Manh Huu Nguyen and Anh Ngoc Quang Huynh

The Journal of Economic Asymmetries, 2022, vol. 26, issue C

Abstract: The COVID-19 pandemic, which originated in Wuhan, China, precipitated the stock market crash of March 2020. According to published global data, the U.S. has been most affected by the tragedy throughout this outbreak. Understanding the degree of integration between the financial systems of the world's two largest economies, particularly during the COVID-19 pandemic, necessitates thorough research of the risk transmission from China's stock market to the U.S. stock market. This study examines the volatility transmission from the Chinese to the U.S. stock market from January 2001 to October 2020. We employ a variant form of the EGARCH (1,1) model with long-term control over the excessive volatility breakpoints identified by the ICSS algorithm. Since 2004, empirical evidence indicates that the volatility shocks of the Chinese stock market have frequently and negatively affected the volatility of the U.S. stock market. Most importantly, we explore that the COVID-19 pandemic vigorously and positively promoted the volatility infection from the Chinese equity market to the U.S. equity market in March 2020. This precious evidence endorses the asymmetric volatility transmission from the Chinese to the U.S. stock market when COVID-19 broke out. These experimental results provide profound insight into the risk contagion between the U.S. and China stock markets. They are also essential for securities investors to minimize portfolio risk. Furthermore, this paper suggests that globalization has carefully driven the integration of China's stock market with the international equity markets.

Keywords: Stock market crash; Asymmetric volatility spillovers; ICSS algorithm; Chinese stock market; The U.S. stock market; COVID-19 pandemic. (search for similar items in EconPapers)
JEL-codes: F00 F36 F51 G01 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:joecas:v:26:y:2022:i:c:s1703494922000366

DOI: 10.1016/j.jeca.2022.e00276

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