Journal
FINANCE RESEARCH LETTERS
Volume 38, Issue -, Pages -Publisher
ACADEMIC PRESS INC ELSEVIER SCIENCE
DOI: 10.1016/j.frl.2020.101604
Keywords
COVID-19; financial contagion; spillover index; financial firms; nonfinancial firms; hedge ratios
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During the COVID-19 period, financial contagion between China and G7 countries occurs through both financial and non-financial firms, with a notably higher increase in correlations for financial firms, leading to higher hedging costs.
This study examines how financial contagion occurs through financial and nonfinancial firms between China and G7 countries during the COVID-19 period. The empirical results show that listed firms across these countries, financial and non-financial firms alike, experience significant increase in conditional correlations between their stock returns. However, the magnitude of increase in these correlations is considerably higher for financial firms during the COVID-19 outbreak, indicating the importance of their role in financial contagion transmission. They also show that optimal hedge ratios increase significantly in most cases, implying higher hedging costs during the COVID-19 period.
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