Volatility Spillovers Among the Three Places Across the Taiwan Strait: Evidence from a BEKK-CARR Approach*

Abstract

This study introduces a new BEKK-CARR model to explore the volatility spillover effects among mainland China, Hong Kong, and Taiwan stock markets during the COVID-19 pandemic. We also extend the approach of Diebold and Yilmaz (2009, 2012) to infer a brand-new volatility spillover index to discuss the bi-directional volatility transmission. Our results show that the trading information flow among these three markets has changed significantly as a result of the COVID-19 pandemic. The strength of volatility spillover is increasing during this momentous period. The Hong Kong stock market plays a pivotal role in volatility transmission. The values for half-lives by exogenous shocks keep relatively low during the pandemic period. A reasonable explanation is that the trading information transmissions among stock markets are quicker than in the non-pandemic period.