Risk spillovers in global financial markets: Evidence from the COVID-19 crisis

This paper aims to comprehensively investigate the dynamics of short-, medium- and long-term risk spillovers across the major financial markets in the context of COVID-19. Our main empirical findings are as follows. First, we find that the deterioration of the COVID-19 pandemic raised the risk of stock, bond, crude oil, and foreign exchange markets sequentially in the short term. Second, from the perspective of the medium and long term, the COVID-19 pandemic triggered substantial risk spillovers across financial markets, which is also highly correlated with the degree of investor panic. Third, we show that different markets played different roles in terms of risk transmission during the pandemic. Specifically, the stock and crude oil markets acted more as risk senders, the gold and foreign exchange markets acted more as risk receivers, and the bond market served as a transfer station of risk. Finally, we find that containment and health responses can effectively mitigate risk spillovers across markets in the short term, while expansionary fiscal policy can reduce them more effectively in the medium and long term. Our findings have important implications for policymakers and investors who aim to mitigate the adverse impact of the COVID-19 pandemic on financial markets.