Financial Network Connectedness and Systemic Risk During the COVID-19 Pandemic

Mike K. P. So (), Lupe S. H. Chan and Amanda M. Y. Chu
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Mike K. P. So: The Hong Kong University of Science and Technology
Lupe S. H. Chan: The Hong Kong University of Science and Technology
Amanda M. Y. Chu: The Education University of Hong Kong

Asia-Pacific Financial Markets, 2021, vol. 28, issue 4, No 7, 649-665

Abstract: Abstract The COVID-19 pandemic causes a huge number of infections. The outbreak of COVID-19 has not only caused substantial healthcare impacts, but also affected the world economy and financial markets. In this paper, we study the effect of the COVID-19 pandemic on financial market connectedness and systemic risk. Specifically, we test dynamically whether the network density of pandemic networks constructed by the number of COVID-19 confirmed cases is a leading indicator of the financial network density and portfolio risk. Using rolling-window Granger-causality tests, we find strong evidence that the pandemic network density leads the financial network density and portfolio risk from February to April 2020. The findings suggest that the COVID-19 pandemic may exert significant impact on the systemic risk in financial markets.

Keywords: Financial contagion; Granger causality; Network density; Pandemic network; Risk analytics (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s10690-021-09340-w

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