Analysis of Stock Return Spillover Effect across China and Related Countries under One Belt One Road Initiative

Abstract

The purpose of this study is to analyze the spillover effect of stock returns between China and 10 countries along the One Belt One Road. To this end, the spillover index suggested by Diebold & Yilmaz (2012) was used. Summarizing the results of the empirical analysis, first, 60% of the variance in forecasting errors in stock returns in China was explained by self-impact. Among the countries along the line, the share explained by the budget error variance of stock returns in Russia, Singapore, and Indonesia was found to be 3.6%, 8.6%, and 5.5%, respectively. Second, the total spillover index was 57.7, which means that 57.7% of the prediction error variance of stock returns in one country can be explained by the impact of stock returns in other countries. Third, according to the results of the total spillover effect time variability analysis using rolling sample analysis, the total spillover index and the Chinese SSEC index had a weak positive (+) relationship before the One Belt One Road implementation (2013). After implementation, it was found to have an average negative (-) relationship. This shows that inter-regional connections or ripple effects have been strengthened since the implementation of the One Belt One Road and the synchrony between the Chinese market and other markets is deepening.