Risk transmission between equity market of China and its trading partners: new evidence from various financial crises

Ijaz Younis, Imran Yousaf, Waheed Ullah Shah and Cheng Longsheng

International Journal of Emerging Markets, 2023, vol. 20, issue 3, 1063-1096

Abstract: Purpose - The authors examine the volatility connections between the equity markets of China and its trading partners from developed and emerging markets during the various crises episodes (i.e. the Asian Crisis of 1997, the Global Financial Crisis, the Chinese Market Crash of 2015 and the COVID-19 outbreak). Design/methodology/approach - The authors use the GARCH and Wavelet approaches to estimate causalities and connectedness. Findings - According to the findings, China and developed equity markets are connected via risk transmission in the long term across various crisis episodes. In contrast, China and emerging equity markets are linked in short and long terms. The authors observe that China leads the stock markets of India, Indonesia and Malaysia at higher frequencies. Even China influences the French, Japanese and American equity markets despite the Chinese crisis. Finally, these causality findings reveal a bi-directional causality among China and its developed trading partners over short- and long-time scales. The connectedness varies across crisis episodes and frequency (short and long run). The study's findings provide helpful information for portfolio hedging, especially during various crises. Originality/value - The authors examine the volatility connections between the equity markets of China and its trading partners from developed and emerging markets during the various crisis episodes (i.e. the Asian Crisis of 1997, the Global Financial Crisis, the Chinese Market Crash of 2015 and the COVID-19 outbreak). Previously, none of the studies have examined the connectedness between Chinese and its trading partners' equity markets during these all crises.

Keywords: China stock market; Trading partners; Time-frequency; Risk co-movement; GARCH and wavelet approach (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijoemp:ijoem-11-2022-1763

DOI: 10.1108/IJOEM-11-2022-1763

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