Financial Contagion During COVID-19 Crisis: Intraday Analysis Using VAR-VECM Models

In this chapter, we investigate the contagion effects between equity markets over the period of the COVID-19 crisis. For that purpose, we use an intraday price data spanning from November 01, 2019, to March 30, 2020. Compared to the existing literature, we provide more appropriate analysis and complete understanding of volatility transmission structure in the COVID-19 crisis time, by, first, considering the contagion effect between the USA and selected developed and emerging countries, on the one hand, and between China and the considered markets, on the other hand; second, using more appropriate methodology to investigate the co-movement effect and the causal linkages between equity markets. We first use the cointegration approach of Johansen (J Econ Dynam Cont 12:231–254, 1988) in order to identify a possible change in cointegration relationships between the sub-periods. Second, we use the Granger (Econometrica 37:424–438, 1969) causality test to identify causal relationships between equity markets. Finally, we estimate VAR-VECM models to investigate the strength of co-movement between equity markets and therefore complement the analysis of the Granger causality tests. We show a significant contagion effect from the US market to selected European ones. The co-movement effect of China on selected markets was to be short run.