Volatility Spillover Effects of the US, European and Chinese Financial Markets in the Context of the Russia–Ukraine Conflict

Round 1

Reviewer 1 Report

Review Report

 

International Journal of Financial Studies

ijfs-1924448

 U.S., European and Chinese volatility spillover effects: Implications of The Russia-Ukraine conflict

 The study investigates the volatility spillover effects in the American, European and Chinese stock markets before and during the Russia-Ukraine conflict. The study finds the volatility spillover index increased during the war period with varying levels of 12 dependence and spillover effects. The topic is relevant and the methodology appropriate. Though the results are mildly interesting, addressing following comments will improve the paper.

1. The narrative of the paper does not quite match with the modeling approach. Except choosing the rather arbitrary c date February 24, 2022, there is nothing in the modeling approach that suggest the influence of Russia's uranium war on the transmission of volatility across global financial markets. The methodology does not “show how events related to the Russia-Ukraine conflict have influenced the risk of financial contagion”. It does not “analyze the impact of the war on global financial markets”. Hence, throughout the paper, the discussion should be updated to deemphasize on Russia-Ukraine conflict because the paper does not explicitly test for the war effects, except that the sample period covers conflict period.

2. The title of the paper needs reconsideration. It should have the term “stock market” rather than the vague “U.S., European and Chinese volatility spillover effects”. Perhaps, also consider removing the Implications of The Russia-Ukraine conflict, in light of comment 1.

3. The introduction lacks the motivation for using Diebold and Yilmaz methodology. In doing so, the authors can use studies that use alternate approaches such as A fresh look at integration of risks in the international stock markets: A wavelet approach; Volatility spillover from the US to international stock markets: A heterogeneous volatility spillover GARCH model, amongst others. 

4. What is the rationale for the chosen sample period? Daily data is prone to noise. So what is the rationale to use daily data as compared to monthly/weekly frequencies?

5. The paper can be made stronger by undertaking robustness check using alternant measures of volatility other than Parkinson’s volatility that is used in the paper.

6. Figures should be supported by the intuitive discussion rather than just plain reading of the plots. See, for example, lines 420-425. Similarly, there should be some intuitive explanations of the plots. For example, what explains MSCI-Europe’s net volatility spillover to negative till 2021 and then positive in 2021-2022.

7. Comments relating to presentation style: Missing space in abstract - European,American ; DY used in abstract without defining it; Change on font size on page 7 for stock market indices and Russia- 266 Ukraine conflict; Phrases like “some- 392 times up and sometimes down” can be improved; Avoid 1-2 sentence paragraphs; The study covers the US, Europe, China stock markets and there are not “world's financial markets”; “Morrocan. Financial institutions to”, extra period; extra s[ace in line 4430 and 431; the authors should consider adding a marker for February 24, 2022 in the plots.

 

Author Response

Response to Reviewer 1 Comments:

General comment :

The study investigates the volatility spillover effects in the American, European and Chinese stock markets before and during the Russia-Ukraine conflict. The study finds the volatility spillover index increased during the war period with varying levels of dependence and spillover effects. The topic is relevant and the methodology appropriate. Though the results are mildly interesting, addressing following comments will improve the paper.

Answer :

Dear Reviewer,

Thank you very much to review our paper. We appreciate your thoughtful comments and suggestions, which helped us enhance this manuscript.

Sincerly

 

Comment 1:

The narrative of the paper does not quite match with the modeling approach. Except choosing the rather arbitrary c date February 24, 2022, there is nothing in the modeling approach that suggest the influence of Russia's uranium war on the transmission of volatility across global financial markets. The methodology does not “show how events related to the Russia-Ukraine conflict have influenced the risk of financial contagion”. It does not “analyze the impact of the war on global financial markets”. Hence, throughout the paper, the discussion should be updated to deemphasize on Russia-Ukraine conflict because the paper does not explicitly test for the war effects, except that the sample period covers conflict period.

Answer 1:

Thank you for this pertinent comment. We have tried through our study if Russia's war in Ukraine had an impact on the transmission of volatility between the three stock market indices chosen in our sample. We noticed that the contagion effect increased during this period but not significantly compared to the COVID-19 health crisis for example.

Comment 2:

The title of the paper needs reconsideration. It should have the term “stock market” rather than the vague “U.S., European and Chinese volatility spillover effects”. Perhaps, also consider removing the Implications of The Russia-Ukraine conflict, in light of comment 1.

Answer 2:

We are honored to inform you that we have changed the title of our article in accordance with your comment. The new title we have proposed is: "Volatility Spillover effects of the US, European and Chinese financial market in the context of the Russia-Ukraine conflict". we hope you will accept this proposal and we thank you for your important information.

Comment 3:

The introduction lacks the motivation for using Diebold and Yilmaz methodology. In doing so, the authors can use studies that use alternate approaches such as A fresh look at integration of risks in the international stock markets: A wavelet approach; Volatility spillover from the US to international stock markets: A heterogeneous volatility spillover GARCH model, amongst others. 

Answer 3:

We thank the Reviewer for having suggested this important point. This information and reference were added in the 5th paragraph at Introduction.

Comment 4:

What is the rationale for the chosen sample period? Daily data is prone to noise. So what is the rationale to use daily data as compared to monthly/weekly frequencies? 

Answer 4:

The sample period we have chosen, it covers the periods before and during the war of Russia in Ukraine which started in February 2022. We used daily data versus monthly/weekly frequencies to have a larger number of observations especially since the calculation of dynamic connectivity requires a very large number of observations to have more accuracy when choosing the sliding window of 50 or 100 values.

Comment 5:

The paper can be made stronger by undertaking robustness check using alternant measures of volatility other than Parkinson’s volatility that is used in the paper.

Answer 5:

Thank you so much for your comment. We checked the robustness of our results with your comment. we looked at the robustness of the results at the end of the last section just before the conclusion.

Comment 6:

Figures should be supported by the intuitive discussion rather than just plain reading of the plots. See, for example, lines 420-425. Similarly, there should be some intuitive explanations of the plots. For example, what explains MSCI-Europe’s net volatility spillover to negative till 2021 and then positive in 2021-2022.

Answer 6:

Thank you very much for your comment. We have taken your remarks into consideration when improving the discussion of our results.

Comment 7:

Comments relating to presentation style: Missing space in abstract - European,American ; DY used in abstract without defining it; Change on font size on page 7 for stock market indices and Russia- 266 Ukraine conflict; Phrases like “some- 392 times up and sometimes down” can be improved; Avoid 1-2 sentence paragraphs; The study covers the US, Europe, China stock markets and there are not “world's financial markets”; “Morrocan. Financial institutions to”, extra period; extra s[ace in line 4430 and 431; the authors should consider adding a marker for February 24, 2022 in the plots.

Answer 7:

Thank you very much for all your comments. We have taken into consideration all your comments regarding the style of presentation in the new version of our paper.

 

 

Thank you for your interest in our article.

Sincerely,

 

Reviewer 2 Report

Review the paper and reduce the similarity report (plagiarism). 

Moderate English changes required

Author Response

Response to Reviewer 2 Comments:

Comment :

Review the paper and reduce the similarity report (plagiarism). 

Moderate English changes required

Answer :

Dear Reviewer,

Thank you so much for your wonderful feedback.

The text has been improved as a result of your insightful comments, which have enhanced this study project.

We revised the paper to reduce the the similarity report (plagiarism).

We also contacted English language teachers who helped us to improve the quality of our paper in terms of English.

Thank you very much for taking the time to evaluate our work.

Sincerly

Reviewer 3 Report

This study aims to investigate the volatility spillover effects in the International financial markets before and during the The Russia-Ukraine conflict. The paper is overall well written. I only have some minor comments for the authors to consider.

1) There is no robustness check of the results. You may want to use a different volatility measure and/or model to check the robustness.

2) It may be interesting to explore whether there is some co-integration of the examined data.

3) It might be better to keep 3 or 4 decimal places at the most (e.g. to shorten the digits in Table 2).

Author Response

Response to Reviewer 3 Comments:

General comment :

This study aims to investigate the volatility spillover effects in the International financial markets before and during the The Russia-Ukraine conflict. The paper is overall well written. I only have some minor comments for the authors to consider.

Answer :

Dear Reviewer,

Thank you very much.

We appreciate your thoughtful comments and suggestions, which helped us enhance this manuscript.

Sincerly

Comment 1:

There is no robustness check of the results. You may want to use a different volatility measure and/or model to check the robustness.

Answer 1:

Thank you so much for your comment.

we checked the robustness of our results with your comment. we looked at the robustness of the results at the end of the last section just before the conclusion.

Comment 2:

It may be interesting to explore whether there is some co-integration of the examined data.

Answer 2:

Thank you very much for your comment. We regret to inform you that we did not study the long term co-integration between the volatilities of the three stock market indices because the objective of the study was to quantify the volatility spillovers which allows to determine the contribution of each stock market index in the transmission of past volatility and the study does not aim to predict future volatility. we will take into consideration your valuable comment in our future studies on the financial contagion.

Comment 3:

It might be better to keep 3 or 4 decimal places at the most (e.g. to shorten the digits in Table 2).

Answer 3:

Thank you very much for your comment. We have decided to keep 4 decimal places at the most (in all tables).

-----------------

We hope that Editor and the reviewers find this manuscript acceptable for publication in the International Journal of Financial Studies.

Thank you for your interest in our article.

Sincerely,

Round 2

Reviewer 1 Report

Addressing the comments have made the paper stronger. I have no further comments.