The Risk Contagion between Chinese and Mature Stock Markets: Evidence from a Markov-Switching Mixed-Clayton Copula Model

Author:

Niu Hongli1,Xu Kunliang1,Xiong Mengyuan2

Affiliation:

1. School of Economics and Management, University of Science and Technology Beijing, Beijing 100083, China

2. School of Economics and Management, Hanjiang Normal University, Shiyan 442000, China

Abstract

Exploring the risk spillover between Chinese and mature stock markets is a promising topic. In this study, we propose a Markov-switching mixed-Clayton (Ms-M-Clayton) copula model that combines a state transition mechanism with a weighted mixed-Clayton copula. It is applied to investigate the dynamic risk dependence between Chinese and mature stock markets in the Americas, Europe, and Asia–Oceania regions. Additionally, the conditional value at risk (CoVaR) is applied to analyze the risk spillovers between these markets. The empirical results demonstrate that there is mainly a time-varying but stable positive risk dependence structure between Chinese and mature stock markets, where the upside and downside risk correlations are asymmetric. Moreover, the risk contagion primarily spills over from mature stock markets to the Chinese stock market, and the downside effect is stronger. Finally, the risk contagion from Asia–Oceania to China is weaker than that from Europe and the Americas. The study provides insights into the risk association between emerging markets, represented by China, and mature stock markets in major regions. It is significant for investors and risk managers, enabling them to avoid investment risks and prevent risk contagion.

Publisher

MDPI AG

Subject

General Physics and Astronomy

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