What impacts foreign capital flows to China's stock markets? Evidence from financial risk spillover networks

This study investigates the spillover effects between foreign capital in China's stock market and 11 other financial assets (e.g., major stock markets, financial products, and interest rates). Employing the Diebold–Yilmaz framework (VAR– and QVAR based) and a complex network approach, we found that China's stock market foreign capital is significantly connected to international markets; the U.S., Hong Kong, and the U.K. were the top net risk transmitters. Moreover, money flows were subject to global instability and emergencies, including Brexit, the Sino-US trade war, and the COVID-19 pandemic. The operation of the Northward Fund is sometimes ahead of many developed markets, indicating that capital movement was somehow “Smart Money”. Our study provides a new idea for risk warning and systematic risk prevention.