More different than alike: cross-sector volatility spillovers in Chinese stock sectors during COVID-19 pandemic

Abstract

ABSTRACT The asymmetric spillovers and dynamic connectedness among sectors in Chinese stock market have not been fully studied, especially the impact of catastrophic events related to the COVID-19 pandemic on the linkages. In this paper, an asymmetric VAR-BEKK (DCC) – GARCH model is employed to measure the volatility spillovers and dynamic correlations among Chinese stock sectors before and during the COVID-19 pandemic. The empirical results indicate that volatility spillovers among sectors are significant, with evident differences before and during COVID-19. To be specific, the primary spillover transmitting sector has shifted from telecom business for the pre-pandemic period to the financial real estate sector after the outbreak. However, the role of the raw materials sector as the spillover receiver has not changed. Notably, the medical health sector forms closed-loop chains of transmission with the most other sectors during the COVID-19 period. In addition, asymmetric volatility spillovers and dynamic correlations among stock sectors are also significantly examined. The findings contribute to investors and decision makers in adjusting trading strategies and monitoring market risks.