Systemic risk spillover across global and country stock markets during the COVID-19 pandemic

Bana Abuzayed, Elie Bouri (), Nedal Al-Fayoumi and Naji Jalkh

Economic Analysis and Policy, 2021, vol. 71, issue C, 180-197

Abstract: Uncovering the tail risk spillover among global financial markets helps provide a more comprehensive understanding of the information transmission in extreme market conditions such as the COVID-19 outbreak. In this paper, we examine systemic distress risk spillover between the global stock market and individual stock markets in the countries most affected by the COVID-19 pandemic. Using two important measures of tail dependence risk: conditional value at risk (CoVaR) and delta conditional VaR (ΔCoVaR), we apply the bivariate dynamic conditional correlation (DCC) conditional autoregressive heteroscedastic (GARCH) model. The empirical results reveal that bivariate systemic risk contagion between the global stock market and each individual stock market evolved during the sample period and intensified as COVID-19 spread worldwide. During the COVID-19 period, the developed markets in Europe and North America transmitted and received more marginal extreme risk to and from the entire global market than Asian stock markets. Further analysis involving the connectedness among the value at risk (VaR) series of the sampled stock market indices and the global stock index, shows a high degree of integration in the extreme downside risk of the stock market system, especially during the COVID-19 period. These findings offer practical implications for regulators, policymakers, and portfolio risk managers during the unprecedented uncertainty period provoked by the COVID-19 pandemic.

Keywords: COVID-19; Stock markets; Systemic risk; CoVaR; ΔCoVaR; Connectedness (search for similar items in EconPapers)
JEL-codes: G10 G15 G19 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (66)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:71:y:2021:i:c:p:180-197

DOI: 10.1016/j.eap.2021.04.010

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