Evaluating risk dynamics in Shanghai composite and China sectoral markets

Purpose This study aims to explore fresh insights into risk spillovers and linkages between the Shanghai Composite Index and Chinese sectoral equity markets. Design/methodology/approach Using the wavelet-time-varying parameters-vector autoregressive (TVP-VAR) approach, this study explores fresh insightful risk spillovers and linkages between the Shanghai Composite Index and the Chinese sectoral equity markets. The sample period covered the major US global crises, the Chinese market volatility and the COVID-19 stress subsamples. Findings This study identified health-care and building materials sector as the biggest dynamic spillover receivers in various crises, whereas the Shanghai Composite Index is the major risk transmitter. Moreover, the health-care and construction industries have the largest spillover receivers, and the Shanghai Composite Index is the main risk transmitter of short- and long-term volatility. The authors interface the Shanghai Composite Index as the primary and significant risk spillover transmitter to all sectors, which reduces their returns. The Shanghai Composite Index and Chinese sectors, excluding health care and pharm-bio, have declining demand supply and adjusting the risk–return patterns in the markets for investors during the outbreak of COVID-19. Furthermore, the health-care and construction material sectors had a greater negative effect and received the most significant risks from the Shanghai and Chinese sectors during the COVID-19 pandemic. Research limitations/implications This study has significant implications for investors, speculators, market analysts and policymakers. Originality/value This study uses the wavelet-TVP-VAR approach to analyze risk spillovers between the Shanghai Composite Index and Chinese sectoral markets, with a focus on key crises, such as the US global crises, the Chinese market volatility and the COVID-19 pandemic.