Network Analysis of International Financial Markets Contagion Based on Volatility Indexes

In this paper, five volatility indexes are used as the proxy to examine the risk contagion among major stock markets. Both static and dynamic connectedness methods are employed. First, the overall connectedness can help monitor the dynamic systemic risk. Sharpe increases in total spillover correspond to actual risk events, e.g., the outbreak of COVID-19. Second, Hong Kong bridges the domestic and international stock markets, and forms a protective barrier for the mainland market to some extend. Third, developed economies mainly act as the net risk transmitters in the network. Fourth, Europe shows greater power in risk contagion after the pandemic.

COVID-19 and financial market response in China: Micro evidence and possible mechanisms.

This paper uses event study based on the Generalized Autoregressive Conditional Heteroscedasticity (GARCH) model to study the impact of the COVID-19 outbreak on China's financial market. It finds that the pandemic had an overall significant and negative impact on the stock prices of firms listed on SSE, SZSE and ChiNext. However, such impact appeared to be heterogeneous across industries, affecting listed firms in industries such as pharmaceutical and telecommunications positively, but those in services industries such as accommodation, catering, and commercial services negatively. Apparently, a crisis for some had been an opportunity for others. In addition, this paper seeks to understand the micro mechanism behind the heterogeneity of pandemic shock from the perspective of firms' financial position. It finds that listed firms with higher debt level were hit harder, whereas those with more net cash flow had displayed higher resilience against the blow of the pandemic. However, the opposite pattern is found among those listed on ChiNext and in industries severely devastated by the pandemic. These findings have policy implications in terms of preventing systemic financial risks and facilitating recovery during pandemic-induced economic downturns. It also helps investor adjust investment strategies, hedge against risks, and secure gains when the market conditions in general are unfavorable.