Further evidence of contagion effect between the Chinese and the G20 stock markets during the COVID-19 pandemic: A time-varying copula approach

This paper examines the presence of a contagion effect between Chinese and G20 stock markets as well as its intensity over a recent period from 1(st) January 2013 to 7 April 2022. The empirical study is conducted using the time-varying copula approach. The obtained results show strong evidence of a contagion effect between China and all countries except United States America, Argentina and Turkey during the COVID-19 period. In particular, the Chinese stock market exhibits the highest level of dependence with the Asian and European stock markets in addition to the greatest variability in dependence. These findings are interesting and have important implications for several financial applications.

The role of credit lines and multiple lending in financial contagion and systemic events

Banks play a crucial role in providing liquidity to borrowers, particularly during crises (Kashyap et al., 2002 [33]). The existence of multiple lending relationships between banks and borrowers has been seen as an element that reduces the risk of liquidity shortage for debtors (Detragiache et al., 2000). In this paper, we aim to show how the interaction of these two aspects with solvency and liquidity requirements might have implications for the stability of the banking system, which might still need to be fully analyzed. We show that if other sources of liquidity are unavailable or too costly for banks, multiple lending might be a key element in a systemic liquidity shortage and a large drop in lending to the economy. These findings are particularly relevant for understanding how macroeconomic shocks, such as the relatively recent outbreak of COVID-19, could impact the real economy, as well as for assessing the implications of alternative banking resolution mechanisms.

Does foreign equity investment impact the spillover effect of industries in China?

This study aims to systematically investigate the impact of foreign equity investment on the spillover across industries in China, both in terms of the contagion path and persistence of shocks and the performance during the COVID-19 pandemic. We use daily data on returns covering 2014 to 2022 and apply linear and non-linear causality tests and spillover framework. Our findings show that the two proxies of foreign investment, net buying and Δ Net Buying, significantly shock the spillover across 11 industry indexes of China's stock market, particularly the spillover output and long-term spillover received of sectors. During the COVID-19 pandemic, international investors are bullish on China's economy reflected in the continuous inflow of northbound trading, and the short-run influence on China's stock market is weakened, while the long-run impact remains. Moreover, financial networks suggest that the path of movement international capital movement to accomplish overall contagion through shock in certain specific industries. Overall, this study evidence that the northbound trading generally overlooked by researchers is indeed an important channel of financial contagion to China's stock market.

Financial Contagion Between Crude Oil, Gold, and Equity Sectors in India During COVID

Purpose: This study examined the financial contagion between crude oil and gold prices with the equity prices of different sectors in the Indian equity market during the recent COVID crisis. Design/Methodology/Approach: Dynamic conditional correlation (DCC) GARCH model was employed to analyze the behavior of time-varying conditional correlation during the time of COVID-19. For examining the financial contagion, regression analysis was performed on the dynamic conditional correlation and the conditional volatilities of the different markets. Findings: The DCC model showed a sharp increase in correlations between markets during the COVID-19 wave. It also suggested the presence of financial contagion between the crude oil and gold markets and the different equity sectors. It also indicated that the COVID-19 effect on the conditional correlation between gold and equity sectors was temporary. In contrast, it increased the correlation between crude oil and the equity sectors. Practical Implications: The findings of this study have implications for portfolio diversification methods because higher correlations lower the benefits of diversification. Originality: This study examined the financial contagion during COVID-19 from crude oil and gold to equity sectors. Not all sectors react in the same way to changes in the prices of these commodities, and some may witness less impact compared to others during the crisis period, which makes it interesting for the study. © 2023, Associated Management Consultants Pvt. Ltd.. All rights reserved.

Effects of Financial Contagion in Vietnam during the Pandemic Crisis

The article discusses the features of the spread of the COVID-19 pandemic in Vietnam in the context of the theory and methodology for identifying the effects of financial contagion. The Vietnamese economy in the 2000 demonstrated steady growth, which allowed minimizing many of the negative consequences of the pandemic. At the same time, the Vietnamese economy was exposed to financial contagion - the effects of the transmission of negative shocks from other countries and the subsequent spread between sectors of the national economy. These effects during the pandemic have been empirically confirmed. For this purpose, special tests and an extensive information base on the stock market were used. The results showed that Vietnam was exposed to pandemic shock from China, but was not a transmitter of financial contagion for other Asian countries. In addition, the article fixes the risks of contagion at the sectoral level - the most susceptible to contagion were industries such as trade, real estate and food.

An investigation of financial contagion between cryptocurrency and equity markets: Evidence from developed and emerging markets

The present study conducts a dynamic conditional cross-correlation and time–frequency correlation analyses between cryptocurrency and equity markets in both advanced and emerging economies. The purpose of the study is twofold. First, the study investigates the presence of the pure (narrow) form of financial contagion between cryptocurrency and stock markets in both advanced and emerging economies, during the black swan event of the COVID-19 crisis. Second, the study examines the hedging and safe-haven properties of cryptocurrencies against equity markets, before and during periods of financial upheaval triggered by the COVID-19 pandemic. Two econometric models are used: (1) the dynamic conditional correlation (DCC) GARCH and (2) the wavelet analysis models. Using the DCC GARCH model, the study found the evidence of high conditional correlations between cryptocurrency and equity markets. The high conditional correlation was mostly detected in periods of financial turmoil corresponding to the first quarter and the second quarter of 2020. The increase in conditional correlation during periods of financial upheaval (compared to a tranquil period) indicates the presence of the pure form of financial contagion. The wavelet cross-correlation analysis showed the evidence of positive cross-correlation between the Bitcoin and the equity markets during period of financial turmoil. The cross-correlation was identified in both short and long (coarse) scales. In short scales, the equity markets lead the cryptocurrency market, while the cryptocurrency market leads equity markets in coarse scales. The findings of the present study revealed that the degree of interdependence between cryptocurrency and equity markets has substantially increased during the COVID-19 period, and this has negated the safe-haven and hedging benefits of cryptocurrencies over equity markets. © 2023 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group.

Investigating the dynamics of crisis transmission channels: A comparative analysis

This paper analyzes the growing complexity of cross-market interdependence during financial crises. From macroeconomic, investor constraint, and quantitative easing policy perspectives, we investigate crisis transmission channels across major stock markets by comparing the 2008 global financial crisis, the 2020 COVID-19 crisis, and the 2022 Russo-Ukrainian crisis. We find that lower-tail contagion is mainly driven by the wealth effect and upper-tail contagion is mainly driven by the portfolio rebalancing, and shed light on the underlying dynamic mechanisms, such as credit spreads, risk aversion, economic policy uncertainty, and quantitative easing policy. Additionally, we show the impact of macroeconomic fundamentals, investor sentiment, and quantitative easing policy on lower-tail and upper-tail financial contagion.

Financial Crises and Financial Contagion in Latin America

The article deals with modern financial crises and features of their spread in Latin America. The classification of crises and ways of their identification are presented. The interconnectedness of modern financial crises is emphasized, which leads to the emergence of double and triple crises. Such crises have been repeatedly recorded in Argentina, Mexico, Uruguay and other countries. Over a period of more than fifty years, Latin America experienced 165 financial crises, with the largest share of them occurring in currency crises. The article proposes the indicator "crisis burden on the countries of Latin America" - its calculation for the period 1970-2019 showed that the region is characterized by alternating growth and decrease in the burden from banking and currency crises with a relatively stable load from debt crises. The maximum intensity of financial crises was observed in the 1970-1980, and then it decreased, although there were isolated spikes. The interconnectedness of crises is analyzed in the context of the effects of financial contagion - the transmission of shocks through different channels from one country or region to another country or region. Two main approaches explaining the mechanisms of transmission of crises between countries have been allocated. The results of studies indicating the direction and extent of financial contagion in Latin America were discussed. In particular, it is shown that contagion in the crisis periods of 1990-2000 spread both within the region and from the United States through trade and financial channels. The article presents the results of its own empirical study, which also confirmed the existence of contagion in this region. For the calculations, daily data on the stock indices of 8 Latin American countries over a long period of time were used. With the help of econometric tests for shifts in correlations (Forbes-Rigobon test and coskewness test), it was found that the recipients of contagion that spread through the stock market channels from the United States during the global financial crisis of 2007-2009 were countries such as Argentina, Brazil, Colombia and Mexico. During the crisis caused by the spread of COVID-19, only Mexico was susceptible to contagion. This made it possible to draw a conclusion about the resilience of Latin American economies to the pandemic shock and the effectiveness of restrictive government measures.

Directional predictability and volatility spillover effect from stock market indexes to Bitcoin: evidence from developed and emerging markets

PurposeThis paper aims to quantify the volatility spillover impact and the directional predictability from stock market indexes to Bitcoin.Design/methodology/approachDaily data of 15 developed and 15 emerging stock markets are used for the period March 2017–December 2021.;The author uses vector autoregressive (VAR) model, Granger causality test and impulse response function (IRF) to estimate the results of the study.FindingsEmpirical results show a significant unidirectional volatility spillover impact from emerging markets to Bitcoin and only six stock markets are powerful predictors of Bitcoin return in the short term. Additionally, there is no a difference between developed and developing markets regarding the directional predictability however there is difference in the reaction of Bitcoin return to shocks in the emerging markets compared to developed ones.Originality/valueThe paper proposes different econometric techniques from prior research and presents a comparative analysis between developed and emerging markets.

Insights Into Financial Contagion: A Bibliometric Study

Research on financial contagion has witnessed an exponential growth over the last two decades due to increase of interdependence among financial markets of various countries. In the present study, bibliometric analysis has been employed to summarize the present status and to identify significant gaps in the prevalent literature on financial contagion. The Scopus database has been used to retrieve information pertaining to 456 research papers on financial contagion via keyword searching approach over the period of more than two decades ranging from 1997 to 2021. Performance analysis techniques have provided valuable insights into the most influential authors, countries, organizations and journals that play active role in enriching the literature on the selected theme. Scientific mapping technique, namely bibliographic coupling has also been used to establish the linkage among those published papers that cite the same document. As a result, a thorough examination of the financial contagion documents not only examines current research characteristics and trends but also assists the researchers in determining the best research entrance point and in conducting in-depth research. © 2023 Fortune Institute of International Business.

Exploring the Contagion Effect from Developed to Emerging CEE Financial Markets

The paper aims to analyze the contagion effect coming from the developed stock markets of the US and Germany to the emerging CEE stock markets of Romania, Czech Republic, Hungary, and Poland using daily data for the period April 2005–April 2021. The paper also captures the level of integration of these emerging stock markets by analyzing the volatility spillover phenomenon. The quantification of the contagion effect coming from the developed to the emerging stock markets consisted of an empirical analysis based on the DCC-GARCH (Dynamic Conditional Correlation) model. Through this multivariate model, the time-varying conditional correlations were analyzed, both in periods of normal economic development and in times of economic instability, when there was a significant increase in the correlation coefficients between developed and emerging stock market indices. Furthermore, the level of connectedness between these markets has been analyzed using the volatility spillover index developed by Diebold and Yilmaz. The empirical results surprised the high level of integration of the analyzed stock markets in Central and Eastern Europe, with the intensity of volatility transmission between these markets increasing significantly during times of crisis. All stock market indices analyzed show periods during which they transmit net volatility and periods during which they receive net volatility, indicating a bidirectional volatility spillover phenomenon. Mostly, the BET, PX, and WIG indices are net transmitters of volatilities, whereas the BUX index is net recipient, except during the COVID-19 crisis, when it transmitted net volatility to the other three indices. Finally, using a Markov switching-regime VAR approach with two regimes, we explored the contagion effect between emerging CEE and developed stock markets during the COVID-19 pandemic. The empirical results proved a shift around the outbreak of the health crisis, after which the high volatility regime dominates the CEE markets. The contagion effects from developed stock markets to emerging CEE markets significantly increased during the first stage of the health crisis. © 2023 by the authors.

Volatility Spillover Effects of the US, European and Chinese Financial Markets in the Context of the Russia-Ukraine Conflict

The present study aims to investigate the volatility spillover effects in the international financial markets before and during the Russia-Ukraine conflict. The subject of this paper is the study of the influence of the recent war between Russia and Ukraine on the transmission of volatility between the American, European and Chinese stock markets using the DY methodology. The sample period for daily data is from 1 June 2019 to 1 June 2022, excluding holidays. The volatility spillover index increased during the war period, but this increase remains insignificant compared to that recorded during the COVID-19 pandemic crisis. According to the empirical results, we also found varying levels of dependence and spillover effects between the European, American and Chinese stock indices before and during the Russia-Ukraine conflict.

Impact of the COVID-19 on MSCI world equity market index

This article aims to analyse and measure the impact of the COVID-19 daily fatality cases, along with the BRENT prices and the financial volatility index (VIX) on the global economy, proxied by MSCI global market index (MXWO) both in the long run and the short-run, and discuss policy responses using the ARDL methodology. The study contributes to the literature as it is one of the first studies aimed at measuring the impact and direction of COVID-19 daily fatality cases on the global markets investigated through financial contagion. The ARDL model estimates indicated a significant and negative effect of the coronavirus crisis on MXWO. BRENT prices seem to have no direct effect on the global economy proxied by MXMO index, both in the long and the short term. But, it is likely to have an indirect effect through financial volatility as BRENT prices reacted sharply to the rise in financial volatility.

Pandemic-driven financial contagion and investor behavior: Evidence from the COVID-19.

This paper studies the pandemic-driven financial contagion during the COVID-19 period and the impact of investor behavior on it by constructing three types of direct behavior measurements based on Google search volumes. More specifically, using a sample of 26 major stock markets around the world during the COVID-19 pandemic, we construct a non-linear financial contagion network via a dynamic mixture copula-EVT (extreme value theory) model to quantitatively detect and measure the complex nature of pandemic-driven financial contagion. Furthermore, through constructing direct investor behavior measurements including investor attention, sentiment, and fear, we find investor behavior plays an important role in explaining pandemic-driven financial contagion. We also find that the impacts of investor behavior on the pandemic-driven financial contagion are heterogeneous under several different settings, including market conditions, market development levels, regional subsets, and contagion directions.

Static and dynamic liquidity spillovers in the Eurozone: The role of financial contagion and the Covid-19 pandemic

This paper investigates static and dynamic liquidity spillovers for a pool of ten Eurozone countries for the period 2000–2021. We estimate a generalised vector autoregressive (VAR) model based on Diebold and Yilmaz (2009, 2012). We find evidence for static and dynamic transmission of shocks through the liquidity channel. We propose a static measure of liquidity spillovers which captures total and pairwise average spillovers across Eurozone countries. Our measure shows strong evidence of interconnection within the Eurozone through the liquidity channel. We investigate the dynamic intensity and direction of liquidity spillovers, finding significant evidence of contagion during crisis periods. Our results indicate that most of the shocks during periods of financial uncertainty arise from leading economies within the Euro area.

Volatility Spillover Effects in the Moroccan Interbank Sector before and during the COVID-19 Crisis

The objective of this paper is to analyze the volatility spillover effects in the Moroccan interbank sector before and during the COVID-19 pandemic crisis using the DY model. Specifically, this study assesses the impact of the recent COVID-19 outbreak on the transmission of volatility among Moroccan banks listed in the Moroccan stock market. The data sample frequency is daily and extends from 1 January 2012 to 31 December 2021, excluding holidays. The empirical results indicate that the volatility spillover index increased during the pandemic crisis. We also found varying degrees of interdependence and spillover effects between the six publicly traded Moroccan banks and the Moroccan banking sector stock index before and during the COVID-19 pandemic crisis.

Financial contagion intensity during the COVID-19 outbreak: A copula approach.

The sudden and rapid spread of the novel coronavirus (COVID-19) has had a severe impact on financial markets and economic activities all over the world. The purpose of this paper is to investigate the existence and intensity of financial contagion during the COVID-19 outbreak. We use daily series of stock indexes of 10 Asian countries (Taiwan, Hong Kong, Singapore, India, Indonesia, Malaysia, South Korea, Vietnam, Australia and China) and 4 American countries (the United-States, Brazil, Mexico, and Argentina) over the period starting from January 1st, 2014 to June 30th, 2021. Based on a copula approach, the results show that all studied markets are affected by the COVID-19 outbreak and the presence of financial contagion for all American and Asian countries. The results also show that contagion is more intense for American countries than Asian ones. These findings have practical implications, especially for investors, risk managers, and policy makers. The latter should continue to provide liquidity to the international market during this pandemic.

COVID-19 and GCC Islamic market Indices

The study aims to analyze the impact of COVID-19 pandemic on the GCC Islamic market indices by taking daily prices of stock market indices from SP Global website during the period from 4th June 2019 to 4th July 2020. The study argues that the Dow Jones Islamic indices tend to follow the most conservative screening process, among other Islamic indices, which will allow us to have a clear comparison between them and the conventional counterpart. The study utilized three risk-adjusted performance measures including Sharpe ratio, Treynor ratio and Jensen alpha which are calculated pre- and during COVID-19 period. The study concludes that Islamic indices have outperformed the conventional indices during the COVID-19 period. The findings of the study indicate that the risk profile of the Islamic market indices is low as compared to the conventional indices. The findings of the study are expected to help the investors in better designing their portfolio. © 2021 IEEE.

Contagion in Global Stock Markets during the COVID-19 Crisis.

The impact of the coronavirus disease (COVID-19) outbreak on global stock markets is investigated by analyzing the impact of the COVID-19 pandemic on the stock markets of 15 countries selected from Asia, Europe, Latin America, and North America. Using extremal dependence tests of contagion, it is found that contagion effects are widespread to global equity markets in four regions. Latin America and North America are highly exposed to contagion risks, followed by Europe, with Asia being least vulnerable. Based on the time window of the crisis severity index, it is found that Latin America is most likely to be affected. The results confirm that for countries with more severe epidemics, there are stronger contagion effects. Therefore, for the governing authorities of various countries, if they want to prevent the contagion of financial crises during the pandemic, strong and timely epidemic prevention measures are very necessary.

Higher-order comoment contagion among G20 equity markets during the COVID-19 pandemic.

We study the distribution of equity returns in the G20 equity markets to test for contagion following the first official report of a COVID-19 case in China in December 2019 and the subsequent announcement of a global pandemic in March 2020. We find evidence of contagion through equity market tail risk in early 2020 followed by widespread evidence of contagion across multiple channels from the U.S. to G20 equity markets after the pandemic announcement. Our results suggest that global equity markets may be exposed to unpriced pandemic risk factors with implications for portfolio diversification, risk management and financial stability.