Research On Tail Risk Contagion In The Stock Market Under The COVID-19 Pandemi

The 21 st century has seen an increasing number of major emergencies around the world,and their social and economic impact has received increasing academic attention.On January 30,2020,the World Health Organization(WHO)declared the Corona Virus Disease 2019(COVID-19)a major public health emergency of international concern.Compared to previous major emergencies,the COVID-19 pandemic is more widespread,infects more people,and has a more dramatic social and economic impact.In the context of financial globalization,the international economic environment has become increasingly interconnected,and the prevention of the rapid transmission of financial risks due to the impact of major emergencies has become one of the key research topics in academia.In this paper,from the perspective of tail risk and risk transfer mechanisms of the stock market in the context of the COVID-19 pandemic,we combined traditional econometric models with complex network models and applied comparative analysis,simulation,network visualization,and dynamic analysis methods to study the impact of the COVID-19 pandemic on the stock market and risk transfer mechanisms from a multi-dimensional perspective.The research content of this paper mainly includes:(I)Research on the tail risk transfer of global stock markets during the COVID-19 pandemic.The CAVia R model was used to measure the tail risk of stock markets in 28 major countries during the COVID-19 pandemic.Building a global stock market risk network based on the complex network method to study the impact of COVID-19 on the risk network;Dynamic analysis was used to study country-to-country risk associations over time during the COVID-19 pandemic.The following are the main conclusions:(1)The COVID-19 pandemic has had a significant impact on the stock markets of most countries and produced obvious tail risks,but there are still a few countries whose stock markets are less affected by the COVID-19 pandemic.The reason for this phenomenon may be that the stock markets of these countries are relatively closed,and some countries have taken effective measures in a timely and rapid manner after the outbreak of the COVID-19 pandemic.(2)Under the influence of the COVID-19 pandemic,the risk network density of global stock markets has tightened,and the COVID-19 pandemic makes systemic risks easier to spread globally.(3)During the COVID-19 pandemic,risk correlations between countries that would otherwise have had low economic correlations are significantly increased by the pandemic,much more so than those that would have had high economic correlations.(II)Research on the industry tail risk transfer of the Chinese stock market during the COVID-19 pandemic.The CAVia R model was used to measure the tail risks among16 sectors of the Chinese stock market during the first outbreak of the COVID-19 pandemic in 2020 and the second outbreak centered in Shanghai in 2022.The risk infection matrix is constructed based on the Granger causality test,and the industry risk-directed network of Chinese stock market is constructed using the complex network method,and the risk infection mechanism between industries during two outbreaks is compared.The following are the main conclusions:(1)The two outbreaks of the COVID-19 pandemic in China have impacted most of the industries in the country,causing huge tail risks,while some industries,such as public utilities and information technology,have not been affected by the epidemic due to their own characteristics.(2)The impact of the first and second outbreak of the COVID-19 pandemic varies by industry.As the second epidemic hits Shanghai as the core area,some industries closely related to the Shanghai economy are more exposed to tail risks.(3)The risk transfer mechanisms caused by the two outbreaks of the COVID-19 pandemic are different.Under the impact of the first outbreak of the the COVID-19 pandemic,the financial industry was the most important source of risk export,accounting for more than half of the output of the industry.However,due to the resilience of the financial industry and the implementation of relevant policies,the financial industry was no longer the largest source of export risk under the impact of the second outbreak of the COVID-19 pandemic,which was concentrated in Shanghai.Risk sources have become four industries closely related to Shanghai’s economic and trade status: software and services,media,real estate,and transportation.At the same time,the transportation and real estate sectors are both major risk importers and exporters in the second outbreak of the COVID-19 pandemic.(III)Research on the risk transfer mechanisms and coping strategies of Chinese stocks and OEFs under the COVID-19 pandemic.The complex network method was used to construct a stock-OEF binary network and combined with simulation analysis to study the risk transfer mechanism in the binary network during the COVID-19 pandemic.The main conclusions are as follows:(1)the impact of the COVID-19 pandemic makes the stock correlation network closer,and the increase of stocks in the central node makes the risk transfer path shorter;the risk becomes easier to spread,and the spread scope and influence are greater.(2)Before the outbreak of the COVID-19 pandemic,OEFs preferred to concentrate their holdings,while after the outbreak,most of the OEFs preferred to diversify their risks by buying more stocks.(3)After the outbreak of the COVID-19 pandemic,a smaller impact level will lead to a large increase in the liquidation rate of the OEF,indicating that the COVID-19 pandemic’s smaller impact may lead to the rapid spread of risks and the collapse of the entire network.At the same time,the impact of the COVID-19 pandemic will also lower the liquidation line;that is,a lower liquidation line will be more likely to cause the overall collapse of the network.The following are the paper’s innovative points:(1)current studies on the COVID-19 pandemic mainly focus on the impact on social stability,macroeconomics,and the single financial market,and most of the literature does not discuss the cross-regional and cross-market risk of contagion.Against the background of the COVID-19 pandemic outbreak,this paper analyzes and studies the tail risk and risk transfer mechanism of the stock market under the impact of major emergencies such as the COVID-19 pandemic outbreak from different dimensions,such as the screening of the tail risk of the stock market,cross-transfer of the global stock market,industry risk transfer of the Chinese stock market,and cross-market risk transfer.(2)Currently,most scholars rely on basic Va R,CVa R,ES,and other models to measure tail risk,while few literatures use the CAVia R model to measure stock market tail risk under the impact of the COVID-19 pandemic.Compared with these methods,the CAVia R model does not make any assumptions about income distribution but directly examines the behavioral characteristics of the tail of income distribution,which can more accurately identify the tail risk under the impact of events.This paper innovatively uses the CAVia R model and dynamic analysis method to change the measurement of tail risk from static large-scale observation to dynamic accurate measurement,thus accurately describing the impact of the COVID-19 pandemic on the stock market in units of time.(3)From the perspective of existing studies,few studies have combined modern measurement methods and complex network methods to study the transfer mechanism of major emergencies in financial markets from multiple perspectives.As a new interdisciplinary method,complex networks can study the risk transfer of the stock market more effectively and intuitively.This paper combined complex network theory and traditional measurement to create a risk transfer network that can intuitively and accurately describe the process and mechanism of risk infection.(4)In view of the special shareholding relationship between OEF and stock,this paper builds a stockOEF dichotomy network model to describe the interdependence between OEF market and stock market,analyzes the risk transfer mechanism between the two through simulation,and compares the similarities and differences of the risk transfer mechanism against the background of the COVID-19 pandemic,so as to fill the research gap in this field.This research presented in this paper not only assists us in improving the macrogovernance response mechanism and risk prevention measures adapted to major emergencies,but it also assists in avoiding cross-sector and cross-market crosstransmission of financial risks and maintaining the bottom line of no systemic financial risks in order to maintain the overall situation of economic development and social stability.