Volatility spillovers among Northeast Asia and the US: Evidence from the global financial crisis and the COVID-19 pandemic

Sun‐Yong Choi

76 citations0/0 files storedEconomic Analysis and Policy

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Financial Risk and Volatility Modeling Market Dynamics and Volatility COVID-19 Pandemic Impacts

Abstract

In this study, we investigate the dynamic connectedness between the volatility of Northeast Asia, namely South Korea, Japan, China, and the United States (US). Specifically, we employ Diebold and Yilmaz’s (2012) spillover index to measure connectedness in stock market volatility. Furthermore, we analyze the dynamic connectedness during the global financial crisis (GFC) and COVID-19 pandemic periods to identify the changes in their relationship following the two crises. Our findings can be summarized as follows. First, the connectedness between the volatility of the four stock markets varies over time. However, the US has played a role as a net transmitter of volatility shocks during the entire period. Second, interdependence increased during the two crisis periods. Based on the total volatility spillover index, interdependence is stronger during the GFC than during the COVID-19 pandemic period. Third, the magnitude of volatility shock transmission to other countries is time-varying. In particular, for the South Korean stock market, the volatility shock transmitted from the Chinese stock market has been larger than that of the US market since 2015. These empirical findings have several important implications for portfolio managers, policymakers, and investors.

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References

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