Title: Dynamic financial connectedness in emerging and developed countries during the COVID-19 outbreak

Authors: Usman Arief; Marwan Asri; Mamduh M. Hanafi

Addresses: Department of Management, Faculty of Economics and Business, Gadjah Mada University, Indonesia ' Department of Management, Faculty of Economics and Business, Gadjah Mada University, Indonesia ' Department of Management, Faculty of Economics and Business, Gadjah Mada University, Indonesia

Abstract: This study examines the dynamic financial connectedness in emerging and developed countries during the COVID-19 pandemic using the Diebold-Yilmaz (2014) connectedness index. The capital markets' reaction during this pandemic provides a new insight into how exogenous shocks drive volatility across countries and increase their interconnectedness. We find that connectivity between capital markets in developed and emerging countries converged in the earlier 2020. Before the World Health Organization (WHO) declared the COVID-19 pandemic, the Shanghai Stock Exchange played a crucial role as an epicenter of the connectedness of shocks. In the period after WHO's declaration, two new epicenters emerged: the capital markets in Brazil and Hong Kong. Finally, the empirical results show that countries with high idiosyncratic risk (with high average log volatility before the pandemic) show amplified risks during the pandemic.

Keywords: connectedness; dynamic; COVID-19; financial market; contagion; developed countries; emerging countries.

DOI: 10.1504/IJEPEE.2025.146766

International Journal of Economic Policy in Emerging Economies, 2025 Vol.21 No.4, pp.335 - 364

Received: 05 Dec 2020
Accepted: 01 May 2021
Published online: 17 Jun 2025 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article