Volatility Spillovers between Major International Financial Markets During the COVID-19 Pandemic

25 Pages Posted: 26 Jul 2020 Last revised: 13 Oct 2020

See all articles by Dong Wang

Dong Wang

School of Economics and Management, Beihang University

Ping Li

Beihang University (BUAA) - School of Economic and Management Science

Lixin Huang

Princeton International School of Mathematics and Science

Date Written: June 21, 2020

Abstract

This paper studies the dynamic change of volatility spillovers between several major international financial markets during the global COVID-19 pandemic using Diebold and Yilmaz’s connectedness index. We found that the total volatility spillover in this March reached its highest level of recent ten years, while the pandemic developed to its worst stage in this April. Results of total directional spillover show that American and British stock markets are main spillover transmitters during the pandemic, while Chinese and Japanese stock markets, as well as GBP/USD exchange rate are spillover recipients. The pairwise directional spillover between American and British stock markets is larger than other pairs. GBP/USD exchange rate and WTI crude oil futures market mainly receive spillovers from American stock market. Results show that the COVID-19 pandemic has caused huge shocks to international financial markets, especially of those countries with severe pandemics, and the pandemic led to increased spillovers between financial markets.

Keywords: COVID-19 Pandemic; Volatility Spillover; Connectedness Index; Financial Markets

JEL Classification: C22, C52, F30, G15

Suggested Citation

Wang, Dong and Li, Ping and Huang, Lixin, Volatility Spillovers between Major International Financial Markets During the COVID-19 Pandemic (June 21, 2020). Available at SSRN: https://ssrn.com/abstract=3645946 or http://dx.doi.org/10.2139/ssrn.3645946

Dong Wang (Contact Author)

School of Economics and Management, Beihang University ( email )

Xueyuan Road, Haidian District
Beijing, 100191
China

Ping Li

Beihang University (BUAA) - School of Economic and Management Science ( email )

37 Xue Yuan Road
Beijing 100083
China

Lixin Huang

Princeton International School of Mathematics and Science ( email )

United States

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