Tail-risk spillovers from China to G7 stock market returns during the COVID-19 outbreak: A market and sectoral analysis

Abstract

This study uses a combination of copulas and CoVaR to investigate risk spillovers from China to G7 countries before and during the COVID-19 pandemic. Using daily data on stock and equity sectors for the period from January 1, 2013 to June 9, 2021, the main empirical results show that, before the COVID-19 pandemic, stock markets were positively related and systemic risk was comparable for all countries. However, during the COVID-19 outbreak, the level of dependence increased for all G7 countries and the upside–downside risk spillovers become on average higher for all stock markets, with the exception of Japan. Our results also provide evidence of higher market risk exposure to information from China for the technology and energy sectors. Moreover, we find an asymmetric risk spillover from China to the G7 stock markets, with higher intensity in downside risk spillovers before and during COVID-19 spread.