Risk Transmission and Hedging Strategies Between Chinese Stock Market and Major Trading Partners Along the Belt and Road in COVID-19 Scenario

Hongjun Zeng and Abdullahi D. Ahmed
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Hongjun Zeng: RMIT University, Melbourne, Australia
Abdullahi D. Ahmed: RMIT University, Melbourne, Australia

American Business Review, 2024, vol. 27, issue 2, 372-400

Abstract: This paper focuses on the multi-scale spillover and time-varying dependence of Chinese stock market and its important trading partners along the Belt and Road around the COVID-19 crisis. We use multiple methods - the DY (12) and BK (18) connectedness approaches that investigate dynamic and frequency connectedness; the wavelet coherence and the time-varying CoVaR to examine the connection between price lead lags and systemic risk spillovers. Our empirical results show spillovers to be asymmetric, and short-term spillovers dominating. Meanwhile, the level of spillover in the system increased sharply after the COVID-19. In the medium and long-term frequency domains, wavelet coherence reveals strong co-movement between the Chinese market and its major trading partners. We see that the highest level of systematic risk spillovers occurs at the beginning of the COVID-19 outbreak. Finally, the weighting of the Chinese stock market in the effective portfolio rises after the COVID-19 outbreak.

Keywords: Belt and Road; Spillover Structure; Systemic Risk Spillover; Lead-Lag Relationship; COVID-19 (search for similar items in EconPapers)
JEL-codes: C58 E65 G11 G15 G32 (search for similar items in EconPapers)
Date: 2024
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