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COVID-19 and A-share banks' stock price volatility: From the perspective of the epidemic evolution in China and the US

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  • Li, Shanshan

Abstract

With a financial market dominated by indirect financing, China's banking system played a critical role in the government's response to COVID-19, which piqued our interest in the short-term impact of COVID-19 on the risk of China's banks. Examining the stock price of A-share listed banks and the number of confirmed cases in China and the US during the short time window surrounding the COVID-19 pandemic's outbreak, this study reveals that COVID-19 increased the A-share banking price volatility in both China and the US, reflecting a strong spillover effect of the US economic and financial system. Furthermore, COVID-19 in China has a smaller impact on the stock price volatility of China's state-owned banks (SOBs) than that of medium- and small-sized (M&S) banks, reflecting the higher risk resistance capability of large SOBs. Further analysis confirms that the impact primarily reflected systematic risk rather than idiosyncratic risk, as small and micro enterprises and M&S banks received more targeted financial support from the government. In contrast, large banks took on more responsibilities in the emergency financial stimulus, narrowing the idiosyncratic risk gap between the two types of banks and allowing the banking industry to better play its core role in the recovery of real economy in China. These findings will assist us in better understanding the effectiveness of financial assistance policies during the epidemic and will provide insights for future policymaking during similar crises.

Suggested Citation

  • Li, Shanshan, 2022. "COVID-19 and A-share banks' stock price volatility: From the perspective of the epidemic evolution in China and the US," Global Finance Journal, Elsevier, vol. 54(C).
    • Handle: RePEc:eee:glofin:v:54:y:2022:i:c:s1044028322000539
    DOI: 10.1016/j.gfj.2022.100751
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    More about this item

    Keywords

    COVID-19; Banking stock price volatility; Systematic risk; Idiosyncratic risk;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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