A Demand-Oriented Industry-Specific Volatility Spillover Network Analysis of China’s Stock Market around the Outbreak of COVID-19

Using a carefully selected industry classification standard, we divided 102 industry security indices in China’s stock market into four demand-oriented sector groups and identified demand-oriented industry-specific volatility spillover networks. The demand-oriented concept is a new way in which to reconstruct the structure of the networks. Analyzing networks from a demand-oriented perspective can improve the understanding of the change in economic demand, especially when the macroeconomy is dramatically influenced by exogenous shocks, such as those due to the outbreak of COVID-19. At the beginning of the outbreak, spillover effects from industry indices of sectors meeting the investment demand to those meeting the consumption demands rose significantly in China’s stock market. However, these spillover effects declined after the outbreak containment in China appeared to be effective. In addition, some service sectors, including utility, transportation and information services, have played increasingly important roles in the networks of industry-specific volatility spillovers since the COVID-19 outbreak. The efforts to contain the outbreak, led by the Chinese government, have been successful and work resumption has been organized with high efficiency. First, the risk of investment demand has therefore been controlled and eliminated relatively quickly. Second, the intensive use of non-pharmaceutical interventions (NPIs) has led to supply restrictions in services in China, which will still be a potential threat to economic recovery in the next stage.