Does the COVID-19 outbreak affect dynamic co-movement among the stock markets of China, Japan, and the USA?

Haoyu Li ()
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Haoyu Li: Department of Applied Statistics, University of Malaya, 50603 Kuala Lumpur, Malaysia

International Journal of Financial Engineering (IJFE), 2025, vol. 12, issue 01, 1-18

Abstract: The research examines the effect of the COVID-19 outbreak on the dynamic co-movement of the stock markets of China, Japan, and the USA using a VAR model and a DCC-GJR-GARCH model. Especially, this study focuses on during and preceding the COVID period. This study data period extends from 1 January 2016 to 31 April 2022. The results demonstrate that COVID-19’s effect increases stock market volatility. Meanwhile, the VAR model revealed that the USA’s exogeneity was greater during COVID-19. In addition, the pre-crisis Granger Causality between China–USA and Japan–China is substantially higher than during the crisis. The findings of DCC-GJR-GARCH indicate the presence of volatility clustering in each of the stock markets. Moreover, the results suggest that the time-varying correlations between China and the USA during the pre-COVID period are greater than during the COVID period. The study’s findings highlight that investors attempting to increase investment diversification opportunities worldwide should always consider dynamic co-movement in different periods to maximize returns and minimize risk.

Keywords: Dynamic co-movement; DCC-GJR-GARCH; stock markets; COVID-19; stock returns (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1142/S2424786323500639

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