2021/11/18 by Minseog Oh, Oh, Minseog, Donggyu Kim +1 · 1 citation
Economics, Econometrics and Finance · Mathematics · #Complex Systems and Time Series Analysis #FOS: Computer and information sciences #FOS: Economics and business #Financial Risk and Volatility Modeling #Market Dynamics and Volatility #Methodology (stat.ME) #Statistical Finance (q-fin.ST) #q-fin.ST #stat.ME
paper · pdf · doi:10.48550/arxiv.2111.09655
arxiv created 2021/11/18 · openalex publication_date 2021/11/18 · arxiv updated 2021/11/19 · openalex created_date 2021/11/22 · openalex updated_date 2026/07/28
In this paper, we investigate the effect of the U.S.--China trade war on stock markets from a financial contagion perspective, based on high-frequency financial data. Specifically, to account for risk contagion between the U.S. and China stock markets, we develop a novel jump-diffusion process. For example, we consider three channels for volatility contagion--such as integrated volatility, positive jump variation, and negative jump variation--and each stock market is able to affect the other stock market as an overnight risk factor. We develop a quasi-maximum likelihood estimator for model parameters and establish its asymptotic properties. Furthermore, to identify contagion channels and test the existence of a structural break, we propose hypothesis test procedures. From the empirical study, we find evidence of financial contagion from the U.S. to China and evidence that the risk contagion channel has changed from integrated volatility to negative jump variation.