Quantile Connectedness Among Stock Markets in Asean+China

Previous studies have examined the connectedness between Chinese and ASEAN stock markets using an average-based measure. However, none have analyzed the connectedness between Chinese and ASEAN stock markets at extreme upper and lower quantiles. This study addresses this gap by estimating quantile-based return spillovers using Ando et al.’s (2018) approach, which extends the average measure-based connectedness approach of Diebold and Yilmaz’s (2009, 2012, 2014) approach. We find a higher level of connectedness between Chinese and ASEAN stock markets at extreme upper and lower quantiles compared to the median quantiles, which suggests the use of a quantile-based connectedness approach instead of an average-measure-based one. The relative tail dependence analysis indicates that the Chinese and ASEAN stock markets are highly connected during extremely bearish market conditions compared to the extreme bullish market conditions, which provides evidence of asymmetry. The time-varying connectedness analysis shows that the total spillovers reach the highest peaks during the global financial crisis, the Chinese stock market crash, and the COVID-19 pandemic at the upper, lower, and median quantiles. Finally, the static and dynamic pairwise spillovers between the Chinese and ASEAN markets vary over quantiles as well. Our results provide insightful information to investors, portfolio managers, and policy markets regarding portfolio allocation, forecasting, and risk management in different market conditions.