Financial contagion among COVID-19 concept-related stocks in China

Abstract

This paper investigates, for the first time, the presence of financial contagion among several important Chinese coronavirus concept-based stock indices during the recent COVID-19 global pandemic. We utilize a regime-switching skew-normal (RSSN) methodology to test for contagion through the correlation and coskewness channels while considering structural breaks in the different moments. Our results present evidence of contagion effects, which are robust across identified crisis and non-crisis periods, including that of the Wuhan lockdown. Our empirical results offer investors and policy-makers an additional layer of information when evaluating response mechanisms to major crises through the use of concept-based indices.

Financial contagion intensity during the COVID-19 outbreak: A copula approach

“…The authors used the FARM-selection approach and the time-varying financial network model and concluded that the Covid-19 outbreak increases the number of contagion channels in the international financial system. Corbet, Hou, Hu, and Oxley (2021) examined the presence of financial contagion among several Chinese coronavirus concept-based stock indices during the COVID-19 outbreak. They used a regime-switching skew-normal (RSSN) methodology to test for contagion through the correlation and channels while considering structural breaks in the different moments.…”

Behavioural finance and cryptocurrencies

“…, 2019a, b), showing that there is strong evidence of explosive periods in cryptocurrency prices, suggesting however, the term bubble should be used with more caution, since the interpretation of these explosive periods as cryptocurrency bubbles requires a sufficient understanding of the fundamental value of cryptocurrencies. Corbet et al. (2022), using a regime-switching skew-normal (RSSN) methodology, investigated the presence of financial contagion amongst several important Chinese stock indices during the COVID-19 pandemic, with their results showcasing contagion effects.…”

Behavioural Finance and Cryptocurrencies

“…The paper of Gronwald (2021) revisits the issue of price explosiveness in cryptocurrency markets (see also Bouri et al, 2018), showing that there is strong evidence of explosive periods in cryptocurrency prices, suggesting however, the term bubble should be used with more caution, since the interpretation of these explosive periods as cryptocurrency bubbles requires a sufficient understanding of the fundamental value of cryptocurrencies. Corbet et al (2022) Barberis and Thaler (2003) stated that "behavioural finance has two building blocks: limits to arbitrage, which argues that it can be difficult for rational traders to undo the dislocations caused by less rational traders; and psychology, which catalogues the kinds of deviations from full rationality we might expect to see". Since Keynes (1936) there has been an increasing attention in the identification on the role that sentiment has in the decision-making process of investors in financial markets.…”

“…Corbet et al (2022) Through a regime-switching skew-normal (RSSN) methodology, results reveal that contagion effects are present among several important Chinese stock market indices during the COVID-19 pandemic.…”