Extreme dependence and risk spillover across G7 and China stock markets before and during the COVID-19 period

Abstract

PurposeThe paper analyzes downside and upside risk spillovers between stock markets of G7 countries and China before and during the COVID-19 pandemic.Design/methodology/approachBy using VAR-ADCC models and conditional value at risk (CoVaR) techniques, downside and upside risk spillovers between stock markets of G7 countries and China are analyzed before and during the COVID-19 pandemic.FindingsThe results suggested existence of a significant and asymmetrical two-way risk transmission between majority of pair markets, but the degree of asymmetry differs according to the use of the entire cumulative distributions or distribution tails. Downside and upside risk spillovers are significantly larger before the COVID-19 pandemic in all cases except between CAC 40/DAX and S&P/SSE pairs.Originality/valueThe paper used CoVaR and delta-CoVaR to investigate the downside and upside spillovers between stock markets of G7 countries and China before and during the COVID-19 pandemic.