Research On The Co-Movement Between Stock Markets Of China And Major Developed Countries Under COVID-19

At the beginning of 2020,the sudden outbreak of COVID-19 has ravaged the world,not only posing a serious threat to the lives and health of people around the world,but also impacting the development of the real economy of various countries,which in turn caused large fluctuations in the global stock markets.Under the influence of the sudden public health crisis of COVID-19,has the degree of co-movement between stock markets of China and major developed countries(the United States,the United Kingdom,Japan,Australia,and Germany)changed? What is the change in the direction and duration of the co-movement transmission between stock markets?Studying these issues can help prevent the cross-market spread of financial risks between stock markets under COVID-19,and at the same time provide references and suggestions for China’s financial regulatory measures and investors’ cross-border investment behavior when a public health crisis occurs.This article selects the daily closing price of China’s Shanghai Composite Index,US S&P 500 Index,UK FTSE 100 Index,Japan’s Nikkei 225 Index,Australia’s S&P200 Index,and Germany’s DAX Index from January 1,2017 to December 31,2021 price to study the stock market co-movement between China and major developed countries.In order to better identify the impact of COVID-19 on co-movement,the research period is divided into three parts,namely the pre-epidemic period: January 1,2017 to January 20,2020;the first outbreak period of COVID-19 : January 21,2020 to June 30,2020;period after the first outbreak of COVID-19: July 1,2020 to December31,2021.At the same time,the DCC-GARCH model is used to estimate the correlation coefficient between China and major developed countries during the study period to intuitively analyze the change of the co-movement between stock markets;In addition,a dummy variable representing the status of the COVID-19 is introduced to explore whether it has a substantial impact on the co-movement between stock markets;Finally,through the Granger causality test,it explores the direction of the co-movement effect between China and the United States,Britain,Japan,Australia and Germany.Empirical research shows that: Firstly,under the impact of COVID-19,the stock markets of China,the United States,the United Kingdom,Japan,Australia and Germany have all experienced substantial declines;Secondly,during the full sample period of the study,the co-movement between stock markets basically showed a positive correlation,indicating that the stock markets of China and developed countries have the same trend of change;Thirdly,during the research period,there are also large differences in the level of co-movement between China and major developed countries.The co-movement between stock markets is ranked from high to low: China-Japan,China-Australia,China-UK,China-Germany,and China-US;Then,the DCC-GARCH model shows that during the first outbreak of COVID-19,the stock market comovement between China and the five countries increased significantly,but this linkage enhancement was not sustainable;Finally,through the Granger causality test,it was found that the independence of the Chinese stock market increased significantly during the first outbreak of COVID-19.The Chinese stock market has become the Granger cause of the US,Japanese and Australian stock markets,but this enhanced independence is also not sustainable.After the first outbreak of the epidemic,China had no guiding effect on the stock markets of major developed countries.According to the research conclusion,during the outbreak of COVID-19,the comovement between stock markets of China and major developed countries has increased,and the risk-sharing effect has also enhanced.Therefore,countries should strengthen exchanges and cooperation at the level of financial supervision,When responding to crisis events,a risk early warning mechanism and a multi-country coordination mechanism should be established in a targeted manner;The impact of COVID-19 on the stock markets is not sustainable.In this context,investors should also reduce panic,maintain rational decision-making,and choose a portfolio with low co-movement to avoid risks when making cross-border investments;In addition,the government should also further increase the degree of openness of the capital market,promote the improvement of the capital market in orderly competition,and make it better serve the real economy.