Spillovers and connectedness between Chinese and ASEAN stock markets during bearish and bullish market statuses

Imran Yousaf, Walid Mensi, Xuan Vinh Vo and Sanghoon Kang

International Journal of Emerging Markets, 2023, vol. 19, issue 10, 2661-2690

Abstract: Purpose - This study aims to examine the tail connectedness between the Chinese and Association of Southeast Asian Nations (ASEAN) stock markets. More specifically, the authors measure the return spillovers at three quantile levels: median (t = 0.5), lower extreme (t = 0.05) and upper extreme (t = 0.95). The connectedness at extreme upper and lower quantiles provides insightful information to investors regarding tail risk propagation, which ultimately suggests that investors adjust their portfolios according to the extreme bullish and bearish market conditions. Design/methodology/approach - The authors employ the quantile connectedness approach of Andoet al.(2022) to examine the quantile transmission mechanism among the ASEAN and Chinese stock markets. Findings - The results show significant evidence of a higher level of connectedness between Chinese and ASEAN stock markets at extreme upper and lower quantiles compared to the median quantiles, which suggests the use of a quantile-based connectedness approach instead of an average-measure-based one. Furthermore, the time-varying connectedness analysis shows that the total spillovers reach the highest peaks during the global financial crisis, the Chinese stock market crash and the COVID-19 pandemic at the upper, lower and median quantiles. Finally, the static and dynamic pairwise spillovers between the Chinese and ASEAN markets vary over quantiles as well. Originality/value - This study is the first attempt to examine quantile vector autoregression (VAR)-based return spillovers between China and ASEAN stock markets during different market statuses. Besides, the COVID-19 has intensified the uncertainty in Asian countries, mainly China and ASEAN economies.

Keywords: Quantile spillovers; Tail connectedness; ASEAN stocks; Asymmetry; COVID-19 pandemic; C40; F36; G14 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijoemp:ijoem-07-2022-1194

DOI: 10.1108/IJOEM-07-2022-1194

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