Navigating global financial turbulence: The evergrande collapse and its contagion effect

This study investigates the contagion effects of the Evergrande collapse across international financial markets, with emphasis on tail-risk dynamics. Unlike prior work focusing on average spillovers or event windows, we employ a Quantile Vector Autoregression (QVAR) framework to capture state-dependent connectedness under bearish, median, and bullish market conditions, as well as calm versus turbulent volatility regimes. Using daily data for nine major stock indices (2015–2024), we find that the Evergrande crisis significantly amplified global spillovers, but with heterogeneous magnitudes across quantiles. At the 95 % volatility quantile, returns spillovers in the median quantile from Shanghai to the EU increased, during the Evergrande crisis, by approximately 3.5 % in the Net Pairwise Connectedness (NPC) case. In contrast, with very few exceptions, Canadian spillovers remained negligible, confirming its resilience and diversification potential. These results show that extreme market states reveal contagion patterns invisible in average-state analyses, underscoring the systemic role of Hong Kong as a transmission hub and the conditional global influence of Shanghai. The findings provide actionable insights for policymakers on monitoring tail-risk channels and for investors seeking hedging strategies in insulated markets.