Contagion Effects Among Selected Asian Stock Markets During the COVID-19 Pandemic: A Dynamic Conditional Correlation Approach

This study investigates the dynamic conditional correlation (DCC) using Copula structure between five Asian stock indexes, including Japan (N225), Hong Kong (HIS), South Korea (KS11), Singapore (STI), and Thailand (SET). We employ GARCH-with-Jumps because it has an ability to capture the abrupt change in volatility. We consider the daily data from January 2015 to May 2021 that also embraces the period of COVID-19 pandemic to measure the co-movement. The results of GARCH-type models comparison show that the GARCH-with-Jumps can be an alternative to the conventional GARCH model. All stock series exhibit high volatility persistence, as presented by GARCH(1,1) and GARCH(1,1)-with-Jumps. In terms of the dynamic conditional correlation part, it is found that the Student-t Copula-DCC(1,1)-GARCH(1,1)-with-Jumps based on the lower AIC outperforms the Normal Copula and the conventional DCC(1,1)-GARCH(1,1)-without-Jumps. This result indicates that the Asian stock market returns have tail dependence. The finding on DCC shows the higher values of correlation among Asian stock market returns during the epidemic, except the Hong Kong-Japan and Hong Kong-Singapore pairs. Overall, our findings reveal a significant contagion effect among Asian stock markets during the COVID-19 pandemic.