The risk spillovers from the Chinese stock market to major East Asian stock markets: A MSGARCH-EVT-copula approach

Abstract

This paper studies the risk spillovers of the Chinese stock market to major East Asian stock markets during turbulent and clam periods. We employ the Markov regime-switching model, the extreme value theory (EVT) and the vine copula function to model their multivariate dependence structures and compute the corresponding conditional Value-at-risk (CoVaR) in direct and indirect ways. In the case of the direct CoVaR, we find some interesting results that downside and upside spillovers are significantly different between the turbulent and calm periods, except for the China-Japan and the China-South Korea for the turbulent period. The evidence on the indirect results indicates the differences between the turbulent and calm periods do exist. The other results indicate the spillovers measured ignore the special nature of the different periods when the whole sample is used to model the dependence structure among the stock markets.