Assessment of financial contagion of the stock markets of Russia, USA, China and European countries in 2019–2024, using the copula method

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Abstract

The article examines the transmission of financial contagion between global stock indices, such as the S&P 500 (USA), STOXX 600 (European countries), Shanghai Composite (China) and RTS (Russia), during the pandemic and new anti-Russian sanctions. ARMA–TGARCH models were used to cleanse the indices’ returns from their own trends and volatility. Shock periods were identified based on the 90th percentile of conditional return volatility. The construction of Gaussian and Student copulas for shock and relatively calm periods made it possible to estimate the change in dependencies between index returns taking into account their marginal distributions. The study confirmed financial contagion between all indices (except for the S&P 500 — STOXX 600 pair) during the acute phase of the pandemic, as well as contagion between the European countries index, on the one hand, and the American and Chinese indices, on the other hand, during the period of new sanctions. Calculating the dependencies for the upper and lower tails of the distribution revealed a greater joint reaction of markets to negative shocks than to positive shocks, and demonstrated the dominance of the wealth channel in contagion compared to the portfolio rebalancing channel. The study develops new progressive methods for analyzing the consequences of global risks for the functioning of national financial systems and assessing the effects of financial contagion. It can be useful for investors to manage portfolios and hedge risks, and for governments to pursue effective financial stabilization policies during periods of global shocks.

About the authors

M. Y. Malkina

Center for Macro and Microeconomics

Email: mmuri@yandex.ru
Nizhny Novgorod, Russia

V. V. Osey

National Research Nizhny Novgorod State University named after N. I. Lobachevsky

Email: osejveronika@gmail.com
Nizhny Novgorod, Russia

E. D. Gavrilova

National Research Nizhny Novgorod State University named after N. I. Lobachevsky

Email: yekaterinagavrilova01@gmail.com
Nizhny Novgorod, Russia

K. S. Flores Tuco

National Research Nizhny Novgorod State University named after N. I. Lobachevsky

Email: florestucokimberlysarahi@gmail.com
Nizhny Novgorod, Russia

M. A. Lukashina

National Research Nizhny Novgorod State University named after N. I. Lobachevsky

Email: missis.lukashina03@mail.ru
Nizhny Novgorod, Russia

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