Financial Contagion During COVID–19 Crisis
33 Pages Posted: 26 Apr 2020 Last revised: 20 May 2020
Date Written: March 30, 2020
This study examines how financial contagion occurs through financial and nonfinancial firms between China and G7 countries during the COVID–19 period. The empirical results show that listed firms across these countries, financial and non-financial firms alike, experience significant increase in dynamic conditional correlations between their stock returns. However, the magnitude of increase in these correlations is considerably higher for financial firms during the COVID-19 outbreak, indicating the importance of their role in financial contagion transmission. They also show that optimal hedge ratios increase significantly in most cases, implying higher hedging costs during the COVID-19 period.
Keywords: COVID–19; financial contagion; spillover index; financial firms; nonfinancial firms; hedge ratio
JEL Classification: G15; G20; G21; G22; G23
Suggested Citation: Suggested Citation