Stock Market Volatility Spillovers in G7 and BRIC

ABSTRACT

With the global integration development, the linkage between countries is strengthened in the dynamic spillover effects between BRIC and G7 from 2009 to 2020. We find that G7 is the exporter of risk, and BRIC is the receiver of the risk. We build the spillover model from the DAG-SVAR model. In the static spillover analysis, the net spillover of G7 is higher than that of BRIC. In the dynamic spillover analysis, the total systemic spillover is highly consistent with the world’s risk events. We also consider the directional spillover between G7 and BRIC, and find the volatility spillover of G7 to other markets is higher than that of BRIC. Furthermore, we use the European Debt Crisis, the China-US Trade War, and the Covid-19 Pandemic to study the spillover network’s dynamic evolution. We find that the global financial market’s spillover network is enhanced, and the volatility net spillover increased rapidly after the corresponding events. Specifically, after the Wuhan lockdown, China’s net spillover increased sharply to 264%, ranked first globally, and the net volatility spillover connectedness increased substantially after the Covid-19 Pandemic.

KEYWORDS:

• Volatility spillover
• stock market
• BRIC
• DAG-SVAR

JEL Classification:

• F65
• G15
• G01

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Acknowledgements

We acknowledge the helpful comments from two anonymous reviewers. We thank Prof. Paresh Kumar Narayan for his constructive remarks and useful suggestions. All errors are our own.

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This research is supported in part by Beijing Municipal Education Commission Research Program under Grant No. [SM202010038007], Beijing Office for Philosophy and Social Sciences Program under Grant No. [16JDYJB026], NSF of China under Grant No. [71903136], and Capital University of Economics and Trade Beijing municipal universities basic scientific research fund under Grant No. [QNTD202004].