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

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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)

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.

Suggested Citation

  • Mike K. P. So & Lupe S. H. Chan & Amanda M. Y. Chu, 2021. "Financial Network Connectedness and Systemic Risk During the COVID-19 Pandemic," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 28(4), pages 649-665, December.
    • Handle: RePEc:kap:apfinm:v:28:y:2021:i:4:d:10.1007_s10690-021-09340-w
    DOI: 10.1007/s10690-021-09340-w
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    References listed on IDEAS

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