Pandemic-related financial market volatility spillovers: Evidence from the Chinese COVID-19 epicentre

Utilising Chinese-developed data based on long-standing influenza indices and the more recently-developed coronavirus and face-mask indices, we set out to test for the presence of volatility spillovers from Chinese financial markets during the outbreak of the COVID-19 pandemic upon a broad number of traditional financial assets. Such indices are used to specifically measure the performance of Chinese companies who are inherently involved in the R&D and production of materials and products used to mitigate the effects of influenza and coronavirus, therefore, such indices present a unique barometer of investor sentiment relating to COVID-19 in comparison to traditional Chinese influenza. Within days of the formal announcement of the COVID-19 outbreak, results indicate exceptionally pronounced and persistent impacts of coronavirus on Chinese financial markets compared to that of the traditional and long-standing influenza index. Further, in a novel finding to date, COVID-19 is found to have had a substantial effect on directional spillovers upon the Bitcoin market. Cryptocurrency-based confidence appears to have been instigated through government-developed education schemes, which are identified as one possible explanation for our results, which are found to remain robust across methodological variation.

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In this paper, we explore the volatility spillovers across different Bitcoin markets. We decompose the realized volatility into common and idiosyncratic volatilities, as well as the good and bad volatilities. Then the asymmetry in volatility spillovers between Bitcoin markets is measured by the DY (Diebold and Yilmaz) index. In addition, we construct statistics to test the asymmetry in volatility spillovers between different Bitcoin markets. The results are achieved as follows. The spillovers of systematic and idiosyncratic volatilities dominate the connectedness among different Bitcoin markets. In addition, the idiosyncratic volatility spillovers are more easily influenced by policies. Good volatility spillovers dominate the Bitcoin markets and change over time. The further results suggest that there is significant asymmetry between systematic and idiosyncratic volatility spillovers in the Bitcoin markets, while the asymmetries between good and bad volatility spillovers are heterogeneous in different markets. The findings in this paper can provide some suggestions for regulators controlling market stability and investors generating investment strategies.

Information spillover effects from media coverage to the crude oil, gold, and Bitcoin markets during the COVID-19 pandemic: Evidence from the time and frequency domains

ABSTRACT: There has been a growing hypothesis linking the recent widespread declines in financial markets to the outbreaks of the COVID-19 pandemic. What is, however, unclear is whether the influence of the COVID-19 pandemic on the dynamics of the financial markets is as severe as those associated with traditional financial crises. Using the cases of the USA and China to represent developed and emerging economies, we examine the returns and volatility dynamics of financial market interdependence amid economic and financial crisis periods of divergent origins. Following careful consideration of relevant tests and model selection criteria, we find the VARMA-CCC-GARCH model to be the best approach for modelling financial market returns and volatility spillovers during a crisis. Employing daily financial market returns, we partitioned the study period into two sub-periods: the Great Recession (GFC) and the Great Lockdown (COVID-19), to arrive at the following empirical findings: First, we find that regardless of the type of crisis—the GFC or COVID-19—unanticipated events in the financial markets in the current period fuel high volatility in the market in the preceding period. Second, while financial markets in developed economies were by far the most affected by the 2008/2009 GFC, the great lockdown associated with COVID-19 appears to have left a permanent shock on both developed and emerging economies' financial markets. It then follows that the extent to which an economy is endowed with the ability to fend off external risks may be sensitive to the origin and nature of the crisis. In this light, it is necessary for policymakers to acknowledge that while some of the instruments used to mitigate the impact of external shocks on financial markets during the GFC may still be applicable during COVID-19 in the case of developed economies, the same appears to not be entirely true in the case of emerging financial markets during COVID-19. On the whole, financial experts and academics may want to be wary of the fact that the past realizations of both returns and volatilities matter for enhancing the forecastability of the future value of financial instruments during a crisis period.

Volatility spillovers among financial markets suggests some sort of information transmission between these markets. The present article uses VAR-BEKK-GARCH approach to investigate volatility spillovers among financial markets in Iran, including stock, foreign exchange and gold markets pre and post JCPOA. To compare volatility spillover among financial markets, the data analyzed were associated with two periods, one pre-JCPOA, i.e. 25 March 2009 to 13 July 2015, and the other post-JCPOA, i.e. 15 July 2015 to 18 July 2018. Moreover, the impulse-response functions were calculated by including the asymmetric volatility spillover of error terms in MGARCH-type equations. Comparing the results obtained from estimating the model confirmed two-way volatility spillover between gold and stock markets in both of the periods, two-way volatility spillover between foreign exchange and stock markets, one-way volatility spillover from gold to foreign exchange markets in the per-JCPOA period, two-way spillover between foreign exchange and gold markets and one-way spillover from stock to foreign exchange markets in the post-JCPOA period. In addition, the effect of volatility spillover from stock to foreign exchange markets was negative in the per-JCPOA period and positive in the post-JCPOA period, and volatility spillovers between financial markets significantly decreased in post JCPOA period. The results of impulse-response functions also confirmed a reduction in the transmission of uncertainty among financial markets in Iran in the post-JCPOA period.

This paper examines the volatility spillovers between Bitcoin market and US banking industry using unrestricted BEKK-GARCH model. The results show that there is a strong short-term volatility spillover effect in the two markets. However, Bitcoin trading volatility process weakens the short-term volatility spillover effect from Bitcoin market to banking industry in the United States and the volatility of banking industry returns (i.e. volatility of operational results) weakens the short-term volatility spillover effect from banking industry to Bitcoin market mainly due to inability of adoption in the short-run. Moreover, there is a significant and (positive) long-term volatility spillover effect from Bitcoin market to banking industry. This remarkable observation reveals that there is a possibility of banking industry adopting Bitcoin operation as a part of banking product portfolio development in the long-run. As such, imposition of any tax or trading restriction (e.g. price bands, transaction cost, tax etc.) on Bitcoin market will adversely impact the performance of banking industry in the long-run. The nature of the impact and its timing are of utmost importance for the government and policymakers, particularly in case of economic planning and restructuring of banking and financial services industry.

This paper estimates the directional return and volatility spillovers among information technology stock indices of five countries in the Asia-Pacific area from 1998 to 2017. We use the directional spillover index developed by Diebold and Yilmaz and reveal the pattern of daily return and volatility spillovers in the information technology stock markets, with special focus on the major crisis events in the global financial market as well as in China. We discover that the United States is the main contributor to both return and volatility spillovers during the entire period, while other countries mainly receive spillovers from the United Sates. We also find drastic spillovers in periods not noticed by previous studies. The results suggest that the global information technology stock markets are closely connected and have some distinct features that need deeper investigations, especially in a world more and more reliant on technology development.

PurposeThis paper aims to provide new perspectives on the integration of East Asian stock markets and the dynamic volatility transmission to the Bitcoin market utilising daily data from 2014 to 2020.Design/methodology/approachThe authors undertake comprehensive analyses of the dependency dynamics, systemic risk and volatility spillover between major East Asian stock and Bitcoin markets. The authors employ a vine-copula-CoVaR framework and a VAR-BEKK-GARCH method with a Wald test.Findings(a) With exception of KS11 and N225; HSI and SSE; HSI and KS11, which have moderate dependence, dependencies among other markets are low. In terms of tail risk, the upper tail risk is more significant in capturing strong common variation. (b) Two-way and asymmetric risk spillover effects exist in all markets. The Hong Kong and Japanese stock markets have significant risk spillovers to other markets, and quite notably, the Chinese stock market is the largest recipient of systemic risk. However, the authors observe a more significant risk spillover from the Chinese stock market to the Bitcoin market. (c) The VAR-BEKK-GARCH results confirm that the Korean market is a significant emitter of volatility spillovers. The Bitcoin market does provide diversification benefits. Interestingly, the Chinese stock market has an intriguing relationship with Bitcoin. (d) An increase in spillovers in East Asia boosts spillovers to Bitcoin, but there is no intuitive effect of Bitcoin spillovers on East Asian spillovers.Originality/valueFor the first time, the authors examine the dynamic linkage between Bitcoin and the major East Asian stock markets.

We examine how the COVID-19 pandemic and Russia-Ukraine war affect volatility spillovers and extreme return movements in the stock, gold, and bitcoin markets. Our study uses the post-pandemic period of up to two and a half years in order to reflect the lingering effects of the pandemic as well as its initial impact. We find that volatility spillover has weakened in the post- versus pre-pandemic period. Additionally, our results suggest that the Russia-Ukraine war has had little impact on volatility spillovers. We subsequently test for extreme return movements separately and find substantial increases in the likelihood that two assets’ extreme returns move simultaneously post- versus pre-pandemic.

Volatility Spillovers between Bitcoin and Chinese Financial Markets

With the accelerated pace of financial globalization and the gradual increase in linkages among financial markets, correctly identifying and describing the risk spillover and network diffusion in the financial system is extremely important for the prevention and management of systemic risk. Based on this, this paper takes the equity markets of 17 countries around the world from 2007 to 2022 as the research object, measures the volatility spillover effect of global financial markets using R-Vine Copula and the DY spillover index, constructs the volatility spillover network of global financial markets, discovers the spillover and diffusion pattern of global financial market risks, and provides relevant suggestions for systemic risk management. It is found that (1) there are certain aggregation characteristics in the network diffusion of global financial market volatility spillover; (2) developed European countries such as the Netherlands, France, the UK, and Germany are at the center of the network and have a strong influence; (3) Asian countries such as China, Japan, and India are at the periphery of the network; and (4) shocks from crisis events enhance the global financial market volatility spillover effect. Based on the above findings, effective prevention of global financial market risk volatility spillover and network diffusion and reduction in systemic risk need to be carried out in two ways. First, by focusing on the financial markets of key countries in the network, such as the Netherlands, the UK, France, and Germany. The second approach is to mitigate the uneven development in global financial markets and reduce the high correlation among them.

Volatility and return spillovers between stock markets and cryptocurrencies

Volatility forecasting in the Bitcoin market: A new proposed measure based on the VS-ACARR approach

Information availability and return volatility in the bitcoin Market: Analyzing differences of user opinion and interest