Spillover and Comovement: The Contagion Mechanism of Systemic Risks Between the U.S. and Chinese Stock Markets

In recent years, the measurement and analysis of comovement have become important subjects with theoretical and practical value. The contagion effects specified in this paper include spillover effects under information transfer and coherent movement under common external influences. We propose using the structural conditional correlation model to measure these two contagion mechanisms. Empirical results find significant mean and volatility spillover and dynamic conditional correlation between the residual series of the structural conditional correlation model for China and U.S. stock index returns, which clearly reflect the transmission channel from international markets to China's markets, especially in financial crises. The methodology introduced here may have implications for the control and management of crises.