Government Policies and Risk Transmission Between Chinese and Digital Markets

Maher Abida

This study analyzes the interactions between the evolution of COVID-19, government measures, cryptocurrencies, and the Chinese stock market from a global perspective. Using a frequency-based connectivity approach within a TVP-VAR framework, we examine short- and long-term contagion effects across these markets. We also employ the SHAP (SHapley Additive exPlanations) method to assess the influence of each factor on the risk associated with the Chinese stock market.
Our results reveal strong frequency dependence, with spillover effects being more pronounced in the short term. Findings also indicate that the pandemic's reproduction rate, the Stringency Index (SI) of government restrictions, and cryptocurrency prices are major determinants of the Chinese stock index (HIS), whereas vaccination rates exert a limited impact. Furthermore, we highlight the close link between public policy indices and market dynamics. Overall, the study underscores the decisive role of pandemic severity and policy responses in shaping risk and transmission mechanisms between markets in China.