Dependence and risk spillovers between mainland China and London stock markets before and after the Stock Connect programs

Kun Yang, Yu Wei, Jianmin He and Shouwei Li

Physica A: Statistical Mechanics and its Applications, 2019, vol. 526, issue C

Abstract: This paper investigates the variations in dependence and risk spillover between mainland China and London stock markets before and after two Stock Connect programs launched in China, by measuring the Conditional Value-at-Risk (CoVaR) and Conditional Expected Shortfall (CoES) using realized volatility which is calculated with high-frequency data and Copula model. The empirical results show that, first, the Shanghai–Hong Kong Stock Connect program enhances the dependence between mainland China and London stock markets, while the overall dependence decreases slightly after the Shenzhen–Hong Kong Stock Connect program. More specifically, the lower-tail dependence between mainland China and London stock markets continues to increase after the second Stock Connect scheme. The upper-tail dependence, however, rises up after the first Stock Connect scheme but decreases sharply after the second Connect scheme. Second, the Stock Connect programs strength the downside risk spillovers between the mainland China and London markets in most cases. Finally, the equal tests on risk spillovers show significant asymmetric features, indicating that the mainland China stock markets are more likely affected by the London stock market.

Keywords: Stock market; CoVaR; CoES; Copula; Realized volatility; High-frequency data (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:526:y:2019:i:c:s0378437119305059

DOI: 10.1016/j.physa.2019.04.119

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