The Linkage Effect Of Financial Markets Under The COVID-19 Pandemic

At the end of 2019,the sudden outbreak of COVID-19 swept Across China,causing a big shock to the financial market including our country’s stock market.This paper aims to explore the causal linkage between China’s financial markets after the outbreak of COVID-19.Before and after the outbreak of the epidemic,how has the causal linkage relationship between China’s financial markets changed?This paper selects stock market,bond market,futures market and money market as research objects.The Shanghai Composite Index(sha)is used as the research variable of the stock market,the CITIC STANDARD&Poor’s all-bond index(zho)is used as the research variable of the bond market,the Composite index of the South China Commodity Futures Market(nan)is used as the research variable of the futures market,and the interbank seven-day repurchase moving average rate(yin)is used as the research variable of the money market.Granger causality test and predictive variance decomposition are mostly used to study variable causality in previous literatures,but both methods have defects.Granger causality test can only be used to determine the chronological order,but cannot really find out the causal relationship between variables,and it especially relies on lag terms.However,whether the result of prediction variance decomposition is correct or not largely depends on whether the disturbance term is set accurately.The appearance of directed acyclic graph(DAG)is to make up for the defects of the above two test methods.So directed acyclic graph analysis method,this paper directed acyclic graph can be calculated(conditions)correlation coefficient between the disturbance,in order to correctly identify the disturbance causal relationship between the same period,providing theoretical basis for vector autoregressive model,in this way,can very good solve the defects of the above two methods of measurement.At the same time,322 groups of daily data before and after the outbreak of the epidemic were selected as the analysis group and the control group,and the change of financial market causality was directly reflected by directed acyclic graph.Finally,in order to prove the reliability of the analysis results in this paper,recursive variance decomposition was performed on the data,and the two periods of time were manually iterated for 10 times respectively to obtain 20 groups of continuous time axis data,so as to prove the robustness of the conclusion of directed acyclic graph.The results show that the outbreak of COVID-19 has indeed changed the causal linkage relationship between China’s financial sub-markets,and the mechanism of transmission channels are mainly two parts:by influencing investors’ expectations,the capital flow from the stock market to the bond market and the money market;Influence the allocation of capital flows in the money market through macroeconomic policy measures.In addition,each market reflects the shock volatility to different degrees,among which bond market and money market have strong independence;In the long run,the financial market’s shock response to the epidemic gradually weakens,and the causal relationship between sub-markets tends to return to normal.