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Extreme risk spillovers between China and major international stock markets

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Qian L., Jiang Y., Long H.

Modern Finance

2023

vol. 1

issue 1

30-34

We examine the complex dependence structure and risk spillovers between the Chinese stock market and twelve major international markets. To this end, we employ three types of vine copulas and tests for the Granger causality in risk of Hong et al. (2009). The results indicate that the R-vine copula is the optimal model to characterize the high-dimensional dependence structure of the markets after China joined the WTO, which suggests obvious structural differences with varying degrees of mainly positive dependences. Moreover, we identify unilateral extreme risk spillovers from China to the United States, France, and Germany, and either from Japan to China. We also detect bilateral spillovers between China and the United States, Japan, as well as Australia.

What drives the dependence between the Chinese and global stock markets?

100%

Qian L., Jiang Y., Long H.

Modern Finance

2023

vol. 1

issue 1

12-16

By applying time-varying copulas and panel regression analysis, this study investigates the dependence between the Chinese and eleven international stock markets, as well as its determinants during the period 2002-2018. Our results indicate that the dependence magnitude between the Chinese stock market and major international markets varies with region. Furthermore, the dependence is negatively driven by both economic policy uncertainty differentials and interest rate differentials while positively affected by the global financial crisis and trade interdependence. Our findings are of great importance to international investors and policymakers.

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Extreme risk spillovers between China and major international stock markets

What drives the dependence between the Chinese and global stock markets?