Bidirectional Risk Spillovers between Chinese and Asian Stock Markets: A Dynamic Copula-EVT-CoVaR Approach

Mingguo Zhao and Hail Park ()
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Mingguo Zhao: Department of International Business and Trade, Kyung Hee University, Seoul 02447, Republic of Korea
Hail Park: Department of International Business and Trade, Kyung Hee University, Seoul 02447, Republic of Korea

JRFM, 2024, vol. 17, issue 3, 1-18

Abstract: This study aims to investigate bidirectional risk spillovers between the Chinese and other Asian stock markets. To achieve this, we construct a dynamic Copula-EVT-CoVaR model based on 11 Asian stock indexes from 1 January 2007 to 31 December 2021. The findings show that, firstly, synchronicity exists between the Chinese stock market and other Asian stock markets, creating conditions for risk contagion. Secondly, the Chinese stock market exhibits a strong risk spillover to other Asian stock markets with time-varying and heterogeneous characteristics. Additionally, the risk spillover displays an asymmetry, indicating that the intensity of risk spillover from other Asian stock markets to the Chinese is weaker than that from the Chinese to other Asian stock markets. Finally, the Chinese stock market generated significant extreme risk spillovers to other Asian stock markets during the 2007–2009 global financial crisis, the European debt crisis, the 2015–2016 Chinese stock market crash, and the China–US trade war. However, during the COVID-19 pandemic, the risk spillover intensity of the Chinese stock market was weaker, and it acted as the recipient of risk from other Asian stock markets. The originality of this study is reflected in proposing a novel dynamic copula-EVT-CoVaR model and incorporating multiple crises into an analytical framework to examine bidirectional risk spillover effects. These findings can help Asian countries (regions) adopt effective supervision to deal with cross-border risk spillovers and assist Asian stock market investors in optimizing portfolio strategies.

Keywords: Asian stock markets; risk spillover; dynamic copula; CoVaR; COVID-19 pandemic (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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