**2. Literature Review**

The analysis of both return and volatility spillover between stock markets is crucial for investors in designing optimal portfolios. According to modern portfolio theory, the gains of international portfolio diversification decrease when the correlation of security returns increases and vice versa. Michaud et al. (1996) discuss the advantages of a low correlation between the developed and emerging markets for international portfolio diversification. Due to this trend, investors can benefit by investing in emerging markets that are weakly interconnected with developed markets. However, this correlation becomes higher during an economic crisis, suggesting low diversification benefits when diversification is most required.

### *2.1. Linkages between US, China, and Asian Stock Markets*

Many studies have been conducted to investigate the link between different stock markets during the last three decades. Liu and Pan (1997) examine the mean and the volatility spillover from the US and Japan to Singapore, Hong Kong, Thailand, and Taiwan. The results show that the US market is more dominant than the Japanese stock market in transmitting return and volatility effects to four Asian stock markets. Huang et al. (2000) investigate the link between the US, Japan, and South China growth triangle. The US stock market significantly and dominantly affects the south Chinese growth triangle compared to the impact of Japan on China's stock market. The return spillover has been also found to be significant from the US to Hong Kong and Taiwan, and from Hong Kong to the Taiwanese stock market. Miyakoshi (2003) estimates the return and volatility spillover between the US, Japan, and seven Asian stock markets (South Korea, Taiwan, Singapore, Thailand, Indonesia, and Hong Kong). It finds a significant return spillover from the US to Asian markets, whereas no return spillover is found from Japan to Asian stock markets. Moreover, the volatility spillover from Japan to other Asian stock markets is observed to be dominant as compared to the volatility spillover from the US to Asian stock markets.

Johansson and Ljungwall (2009) examine the association between stock markets of China, Hong Kong, and Thailand. It reports a significant return spillover from Taiwan to China and the Hong Kong stock market. In contrast, volatility spillover runs from Hong Kong to Taiwan and from Taiwan to the Chinese stock market. Zhou et al. (2012) estimate the spillover between Chinese and international (the US, the UK, France, Germany, Japan, India, Hong Kong, Taiwan, South Korea, and Singapore) stock markets from 1996 to 2009. Before 2005, the Chinese stock market was affected by spillover from other international markets. After 2005, volatility spillover was significantly transmitted from China to most of the other international stock markets. Chien et al. (2015) report on the significant financial integration between China and the ASEAN-5 (Indonesia, Malaysia, the Philippines, Singapore, and Thailand) stock markets. Huo and Ahmed (2017) provide significant evidence of both return and volatility effects from China to the Hong Kong equity market.

### *2.2. Linkages between US, China, and Asian Stock Markets during Crisis*

Many studies have examined the linkages between markets during crisis periods. Yang et al. (2003) investigate the short and long-run relationship between the US, Japan, and ten Asian stock markets, mainly focusing on the Asian financial crisis of 1997–1998. This study reports a strengthened long-run co-integration among these stock markets during the Asian financial crises. The degree of integration is found to change during crises and non-crisis periods. Beirne et al. (2013) look at the volatility spillover from developed to emerging stock markets during periods of turbulence in mature stock markets. It finds that volatility in mature markets affects the conditional variances in emerging stock markets. Moreover, the spillover e ffect from developed to emerging markets is also changed during times of turbulence in mature markets.

Jin (2015) examines the mean and volatility spillover between China, Taiwan, and Hong Kong. It reveals that financial crises have a substantial and positive e ffect on expected conditional variances, but also that the size and dynamics of impacts vary from market to market. Li and Giles (2015) investigate the volatility spillover across the US, Japan, and four Asian developing economies during the Asian financial crisis of 1997 and the US financial crises of 2008. The results revealed that there is a presence of a volatility spillover e ffect from the USA to Asian developing economies and Japan. This study also finds a bidirectional volatility spillover between US and Asian markets that occurred during the Asian financial crisis. Gkillas et al. (2019) explore integration and co-movement between 68 international stock markets (including in the Asian region) during the US financial crisis.

Overall, several studies have examined the return and volatility spillover from the US to Asian markets during the Asian financial crisis of 1997 and the US financial crisis of 2008. However less has been done on both return and volatility transmission from China to the emerging Asian stock markets during the US financial crisis and the Chinese stock market crash. Moreover, no study has examined return and volatility spillovers from the US to the emerging Asian stock markets during the Chinese crash. Therefore, this study addresses these above-mentioned literature gaps.

### **3. Data and Methodology**
