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Spillover and Comovement: The Contagion Mechanism of Systemic Risks Between the U.S. and Chinese Stock Markets

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  • Yaqing Liu
  • Hongbing Ouyang

Abstract

In recent years, the measurement and analysis of comovement have become important subjects with theoretical and practical value. The contagion effects specified in this paper include spillover effects under information transfer and coherent movement under common external influences. We propose using the structural conditional correlation model to measure these two contagion mechanisms. Empirical results find significant mean and volatility spillover and dynamic conditional correlation between the residual series of the structural conditional correlation model for China and U.S. stock index returns, which clearly reflect the transmission channel from international markets to China's markets, especially in financial crises. The methodology introduced here may have implications for the control and management of crises.

Suggested Citation

  • Yaqing Liu & Hongbing Ouyang, 2014. "Spillover and Comovement: The Contagion Mechanism of Systemic Risks Between the U.S. and Chinese Stock Markets," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(03), pages 109-121, May.
    • Handle: RePEc:mes:emfitr:v:50:y:2014:i:03:p:109-121
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    Citations

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    Cited by:

    1. Chen, Chih-Chun & Chen, Chun-Da & Lien, Donald, 2024. "Transmission process and determinants of sovereign credit contagions: Global evidence," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 552-567.
    2. Tabak, Benjamin M. & de Castro Miranda, Rodrigo & da Silva Medeiros, Maurício, 2016. "Contagion in CDS, banking and equity markets," Economic Systems, Elsevier, vol. 40(1), pages 120-134.
    3. Aymen Ben Rejeb & Adel Boughrara, 2015. "Financial integration in emerging market economies: Effects on volatility transmission and contagion," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 15(3), pages 161-179, September.
    4. Ana Escribano & Cristina Íñiguez, 2021. "The contagion phenomena of the Brexit process on main stock markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 4462-4481, July.
    5. Sun, Qi & Xu, Weidong, 2018. "Wavelet analysis of the co-movement and lead–lag effect among multi-markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 512(C), pages 489-499.
    6. Wang, Gang-Jin & Chen, Yan & Zhu, You & Xie, Chi, 2024. "Systemic risk prediction using machine learning: Does network connectedness help prediction?," International Review of Financial Analysis, Elsevier, vol. 93(C).

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