Citation: Liu, J.; Wan, Y.; Qu, S.; Qing, R.; Sriboonchitta, S. Dynamic Correlation between the Chinese and the US Financial Markets: From Global Financial Crisis to COVID-19 Pandemic. Axioms 2023, 12, 14. https://doi.org/10.3390/ axioms12010014 Academic Editor: Boualem Djehiche Received: 14 November 2022 Revised: 18 December 2022 Accepted: 19 December 2022 Published: 23 December 2022 Copyright: © 2022 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https:// creativecommons.org/licenses/by/ 4.0/). axioms Article Dynamic Correlation between the Chinese and the US Financial Markets: From Global Financial Crisis to COVID-19 Pandemic Jianxu Liu 1 , Yang Wan 1, * , Songze Qu 2, *, Ruihan Qing 1 and Songsak Sriboonchitta 3 1 School of Economics, Shandong University of Finance and Economics, Jinan 250000, China 2 School of International and Public Affairs, Columbia University, New York, NY 10027, USA 3 Faculty of Economics, Chiang Mai University, Chiang Mai 50200, Thailand * Correspondence: 20190611025@mail.sdufe.edu.cn (Y.W.); sq2229@columbia.edu (S.Q.) Abstract: As China’s economy and the U.S. economy have shown a definite interaction, there is considerable interest in studying the correlation between the Chinese stock market and the US financial markets. This paper uses an Asymmetric Dynamic Conditional Correlation (ADCC)-GARCH to investigate the correlation between the Shanghai Composite Index (SHCI) and the U.S. financial markets, including SP500, NASDAQ, and US dollar indexes. The empirical results show that the time-varying daily and the lag-one correlation between China and the US stock markets have different performances during global events and national events. Compared with the complicated effect of negative events on the correlation of the stock market, SHCI and USD are negatively correlated with higher negative correlation during the global negative events. In addition, we found Chinese investors are more contagious to the news than American investors, indicating that the Chinese government’s policy are more indicated to Chinese investors. Finally, some policy suggestions are provided, and are beneficial to risk prevention and control, and investment. Keywords: dependence; SP500; USD; financial crisis; COVID-19 1. Introduction In line with globalization and technological advances, China’s economy and the US economy are now undoubtedly more connected. This close economic partnership has the potential to strengthen the interrelationship between Chinese and U.S. financial markets [1]. In view of the “too connected to fail” theory, research on the correlation of Chinese and American stock markets is of great significance, because if a risk occurs in one of these financial markets, both sides will be hurt. On the other hand, the two largest economic systems are in the US and China, which constitute approximately 42.10% of the world GDP [2]. The US financial market and the Chinese stock market are also firmly in the leading position in the world. The economies and financial markets of China and the US are huge. As the “too big to fail” theory explains, a study of the relationship between the two countries’ financial markets is necessary. The stock market as one of the irreplaceable supporting lines for the development of the real economy is then, naturally, a major focus for researchers and investors to actively investigate and put into practice in their portfolio management. The US stock market demonstrates the ability of information flow to global stock exchanges [3]. The U.S. dollar is the world’s dominant currency and a major component of U.S. financial markets. The fluctuations of the U.S. dollar have a significant impact on exchange markets and economies in the world. For example, appreciation of the U.S. dollar causes the depreciation of Chinese Renminbi (RMB). This depreciation benefits exporters and could fuel export-driven growth in China, which could lead to the Chinese stock market rally. However, according to the capital flow theory, RMB depreciation will promote international capital outflow and drive stock prices down [4]. Therefore, the U.S. dollar and the Chinese stock market do not have a clear relation. Most importantly, the U.S. dollar index has maintained an upward trend during the COVID-19 epidemic, Axioms 2023, 12, 14. https://doi.org/10.3390/axioms12010014 https://www.mdpi.com/journal/axioms