Short-run and long-run volatility spillovers from China to countries of the Belt and Road Initiative

Abstract

Since China launched the Belt and Road Initiative (BRI) in 2013, its financial and economic ties with participating emerging markets have deepened. We examine whether this integration has strengthened the channels through which news and volatility in the Chinese stock market affect BRI stock markets. To this end, we estimate several parsimonious yet dynamically rich regressions, controlling for the influence of the US stock market, and compute short-run and long-run multipliers. Notably, we find that countries closer to China – geographically, in trade, and financially – experience greater short-run volatility contagion. However, long-run volatility spillovers remain approximately constant across most regions. We discuss the implications of these findings for investors, portfolio managers, and policymakers.