The Path of Financial Risk Spillover in the Stock Market Based on the R-Vine-Copula Model

This research focuses on the direct and indirect systemic risk spillovers among East Asian, European, and the U.S. stock markets under the COVID-19 pandemic. Based on the GARCH-Copula-CoVaR model, we construct the direct spillover matrix of systemic risk and further explore the indirect spillover path through R-vine. The empirical results first show in the direct path that Hong Kong exhibited the largest change value of risk after the pandemic erupted, implying that the Hong Kong stock market is more sensitive to extreme events. Compared to the quiet period, Russia’s risk output increased significantly after the pandemic, and the pandemic environment intensified the correlation between Russia and other capital markets. Second, in the long run the indirect path is that the European and the U.S. stock market risks are transmitted to China domestically via Hong Kong and Japan, while Germany transmits to Hong Kong through Japan. Compared to the quiet period, the spillover centrality of risk in France is weak, while Germany’s is greater. Lastly, the pandemic situation further aggravated the correlation between Hong Kong and Japan, which as important intermediate nodes connected the indirect transmission path between Europe, the U.S. and China.