Financial contagion of the Russian stock market from the Chinese stock market during the Covid-19 pandemic

The paper explores the financial contagion of the Russian stock market from the Chinese stock market during the global COVID-19 pandemic. Its objectives are to confirm or refute the contagion of these markets during the acute phase of the pandemic and establish the direction, intensity and types of contagion. The study employed average daily values of the RTSI (Moscow exchange) and HSI (Hong Kong stock exchange) indices. To distinguish between the period of exposure of the two countries’ assets to an external shock and the period of relatively calm markets, we calculated the moving normalized coefficients of variation. To test for the presence of contagion, we constructed vector autoregression ( VAR ) models for the logarithmic returns RTSI with an exogenous variable of the logarithmic returns HSI in the pre-crisis, crisis and post-crisis periods, estimated the coefficients for HSI and established their significance. The intensity of contagion was determined by the change in the contribution of the tested variable ( HSI ) to the variance of the dependent variable ( RTSI ) during the crisis period compared to the pre-crisis and post-crisis periods. The Granger causality test allowed us to establish the direction of contagion; the types of contagion were identified using the method of co-moments of return distribution. The study confirmed the existence of contagion from Chinese to Russian stock market during the acute phase of the pandemic and proved its directionality ( HSI → RTSI ), and the decomposition of the coefficient of determination established the intensity of the contagion. In the post-crisis period, market interdependence was observed, caused by incompleteness of the pandemic crisis and changes in contagion foci. Contagion during the crisis occurred in the form of an increase in the lower co-moments of distribution (the impact of HSI returns on RTSI returns, volatility and asymmetry) compared to the pre-crisis period, and manifested itself in the upper co-moments of distribution and market anomalies compared to the post-crisis period. The research results may assist in formulating policies aimed at maintaining financial stability; they will also be useful for investment portfolio optimization.