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COVID-19′s impact on the spillover effect across the Chinese and U.S. stock markets

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  • Zhang, Yongmin
  • Mao, Jiaying

Abstract

This paper investigates the cross-market spillover effect between the Chinese and U.S. stock index returns, and the markets’ volatility from the impact of COVID-19′s spread in China. The results reveal that there was an asymmetric transmission of return shocks to a stronger degree from the Chinese stock market to the U.S. market rather than from the opposite direction, and this asymmetric spillover effect during the COVID-19 spread period in China was three to five times stronger than during the pre-COVID-19 period and the period when COVID-19 was contained in China. Furthermore, we find the risk correlation between the two markets are highest during the COVID-19 spread period in China, and RMB/US exchange rate and gold are two macro spillover channels. The study has important implications for regulators’ supervision of financial markets during a global crisis, and for investors’ cross-market hedging of spillover risks from a systematic shock.

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  • Zhang, Yongmin & Mao, Jiaying, 2022. "COVID-19′s impact on the spillover effect across the Chinese and U.S. stock markets," Finance Research Letters, Elsevier, vol. 47(PB).
    • Handle: RePEc:eee:finlet:v:47:y:2022:i:pb:s1544612322000137
    DOI: 10.1016/j.frl.2022.102684
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