Risk Spillovers in Global Financial Markets: Evidence from the Covid-19 Crisis

40 Pages Posted: 28 Apr 2022

See all articles by Yi Fang

Yi Fang

Central University of Finance and Economics (CUFE) - School of Finance

Zhiquan Shao

Central University of Finance and Economics

Yang Zhao

Central University of Finance and Economics (CUFE) - Chinese Academy of Finance and Development

Abstract

The COVID-19 pandemic has caused a significant negative impact on the world economy and financial markets due to its global nature and severity. This paper aims to comprehensively investigate the dynamics of short-, medium- and long-term risk spillovers across the major financial markets in the context of COVID‐19. Our main empirical findings are as follows. First, we find that the deterioration of the COVID-19 pandemic raised the risk of stock, bond, crude oil, and foreign exchange markets sequentially in the short term. Second, from the perspective of the medium and long term, the COVID-19 pandemic triggered substantial risk spillovers across financial markets, which is also highly correlated with the degree of investor panic. Finally, we show that different markets played different roles in terms of risk transmission during the pandemic. Specifically, the stock and crude oil markets acted more as risk senders, the gold and foreign exchange markets acted more as risk receivers, and the bond market served as a transfer station of risk. Our findings have important implications for policymakers who aim to mitigate the adverse impact of the COVID-19 pandemic on financial markets.

Keywords: Risk spillovers, COVID-19 crisis, medium- and long-term spillovers, spillover networks

Suggested Citation

Fang, Yi and Shao, Zhiquan and Zhao, Yang, Risk Spillovers in Global Financial Markets: Evidence from the Covid-19 Crisis. Available at SSRN: https://ssrn.com/abstract=4085467 or http://dx.doi.org/10.2139/ssrn.4085467

Yi Fang

Central University of Finance and Economics (CUFE) - School of Finance ( email )

Beijing
China

Zhiquan Shao

Central University of Finance and Economics ( email )

770 Middle Road
Dresden, ME 04342
United States

Yang Zhao (Contact Author)

Central University of Finance and Economics (CUFE) - Chinese Academy of Finance and Development ( email )

39 South College Road
Beijing
China

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