Abstract
This paper investigates how the COVID-19 pandemic affects the connectedness network of stock market volatility in 19 economies around the world. Our method builds on the Diebold-Yilmaz volatility network model to construct the volatility spillover index, and uses lag sparse group LASSO to accommodate the high-dimensional system. We find that the outbreak of the COVID-19 pandemic strengthens the overall volatility connectedness, and the global connectedness level remains high throughout 2020. In particular, connections across different continents have become stronger during this period. However, China is shown to be disconnected from the global volatility connectedness network until late November 2020. We find evidence that China is not the main source of volatility spillover during the COVID-19 pandemic.
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