COVID-19 vaccinations and risk spillovers: Evidence from Asia-Pacific stock markets

Abstract

This study investigates the impact of COVID-19 vaccinations on volatility (risk) spillovers among major Asia-Pacific stock markets. Utilizing both mean-based and quantile-based connectedness approaches, we examine the evolving patterns and network structure of risk spillovers not only on average but also in the extreme left and right tails. Risk spillovers are typically stronger under extreme shocks. A common regularity observed in the dynamics of standard (average) and extreme risk spillovers is that there are fewer risk spillovers after the launch of the COVID-19 vaccines. We also conduct a series of regression analyses to investigate the association between spillover levels and vaccination rates. The regression results support that an increase in vaccinations is associated with an decrease in standard risk spillovers. Besides, it is observed that vaccinations have an asymmetric impact on the extreme downside-tail and upside-tail risk spillovers. Further, panic sentiment is identified as a potential channel through which vaccinations affect spillovers. Our findings point to the role of COVID-19 vaccinations in stabilizing the Asia-Pacific stock markets by reducing risk spillovers.