The purpose of this paper is to examine the effect of spatial proximity on financial contagion during the COVID-19 outbreak. We use the daily stock index series of Asian, American, and European countries from January 1, 2014 to January 30, 2021. Two groups of countries are considered: the first includes China and geographically close countries, namely Taiwan, Hong Kong, Singapore, India, Australia, Indonesia, Malaysia, South Korea, Singapore, Vietnam and Russia. The second group includes countries that are geographically distant from China: the United States, Brazil, Mexico, Argentina, Italy, France and Germany. Using local correlation measurement and polynomial regressions, we show that the spatial contagion effect exists between China and geographically distant countries. However, this effect is absent for geographically close countries (Taiwan, Vietnam and Hong Kong). These findings have strong implications for investors and present guidance for regulators and policymakers in understanding the true impact of the COVID-19 on financial markets.
The sudden and rapid spread of the novel coronavirus (COVID-19) has had a severe impact on financial markets and economic activities all over the world. The purpose of this paper is to investigate the existence and intensity of financial contagion during the COVID-19 outbreak. We use daily series of stock indexes of 10 Asian countries (Taiwan, Hong Kong, Singapore, India, Indonesia, Malaysia, South Korea, Vietnam, Australia and China) and 4 American countries (the United-States, Brazil, Mexico, and Argentina) over the period starting from January 1st, 2014 to June 30th, 2021. Based on a copula approach, the results show that all studied markets are affected by the COVID-19 outbreak and the presence of financial contagion for all American and Asian countries. The results also show that contagion is more intense for American countries than Asian ones. These findings have practical implications, especially for investors, risk managers, and policy makers. The latter should continue to provide liquidity to the international market during this pandemic.