Stock market volatility spillovers from U.S. to China: The pivotal role of Hong Kong

Abstract

This study investigates the dynamic volatility spillovers among the stock markets of China, Hong Kong, and the U.S., focusing on Hong Kong as the intermediary transmitter. We find that the U.S. emerges as the primary transmitter of returns and volatility, with Hong Kong being the major recipient. By decomposing the Hong Kong volatility into U.S. and non-U.S. related components, we confirm the intermediary role of Hong Kong in transmitting U.S. monetary policy shocks to China. In addition, our results reveal time-varying patterns and high sensitivity of these spillover transmissions to the U.S.-China trade war, COVID-19 pandemic, and financial crises. These findings highlight Hong Kong's critical role as a financial hub and provide key implications for policymakers aiming to enhance financial stability through cross-market regulations. Investors can also benefit from this knowledge when developing strategies to manage risks tied to global market uncertainties.