The impact of VIX on China’s financial market: A new perspective based on high-dimensional and time-varying methods

• Current research focuses on risk contagion in stock markets, ignoring the joint effects under multiple financial sub-markets. • Analysis of risk contagion from US financial market volatility to China’s nine financial submarkets based on a new perspective of high-dimensional and time-varying method. • Construction of the FAVAR model and TVP-FAVAR-SV model on the basis of testing the common information drive. • Significant difference in results of linear, non-linear Granger causality test. • It testifies to the remarkable results achieved by China in the battle to prevent and resolve major financial risks during the COVID-19 epidemic. Based on the new perspective of high-dimensional and time-varying methods, this paper analyzes the contagion effects of US financial market volatility on China’s nine financial sub-markets. The results show evidence of non-linear Granger causality from the US financial volatility (VIX) to the China’s financial markets. Increased US financial volatility has a negative next-day impact on the stock, bond, fund, interest rate, foreign exchange, industrial product and agricultural product markets, and a positive next-day impact on the gold and real estate markets. US financial volatility has the greatest impact on industrial product market, following by stock, agricultural product, fund, real estate, bond, gold, foreign exchange, and interest rates. Major risk events such as the global financial crisis can cause an enhanced contagion effect of US financial volatility to China's financial markets. This paper supports the achievements of China's actions to prevent and resolve major financial risks in the period of the COVID-19 epidemic.