Contagion between selected European indexes during the Covid-19 pandemic

• Authors: Henryk Gurgul , Robert Syrek

Abstracts

EN

The main aim of this study is to examine dynamic dependence and proof of contagion during the Covid-2019 pandemic. The empirical data are daily prices from six European indexes. The FTSE, DAX and CAC indexes represent the largest and most developed stock markets in Europe, while the Austrian ATX index represents small developed markets. The WIG and BUX indexes represent emerging European markets. This empirical study, based on the Dynamic Conditional Correlation model, which is applied to different pairs of indexes, aims to convince the reader of the increase in the correlation between the time of the pandemic (after 30 December 2019) and the period before the beginning of the pandemic. For all pairs, the mean value of the conditional correlations in the pre-Covid period was statistically below the values in the Covid period. The results indicate contagion in Europe after the outbreak of the Covid-2019 pandemic.

Keywords

EN

European indexes; pandemic Covid-19; dynamic conditional correlation; contagion

• Publisher: Politechnika Wrocławska. Oficyna Wydawnicza Politechniki Wrocławskiej
• Journal: Operations Research and Decisions
• Year: 2023
• Volume: 33
• Issue: 1

Dates

published

2023

Contributors

author

Henryk Gurgul

• Department of Applications of Mathematics in Economics, AGH University of Science and Technology in Cracow, Kraków, Poland

author

Robert Syrek

• 2 Institute of Economics, Finance and Management, Jagiellonian University, Kraków, Poland

References

• [1] Akhtaruzzaman, M., Abdel-Qader, W., and Hammami, H. and Shams, S. Is China a source of financial contagion? Finance Research Letters 38 (2021), 101393.
• [2] Akhtaruzzaman, M., Boubaker, S., and Sensoy, A. Financial contagion during COVID–19 crisis. Finance Research Letters 38 (2021), 101604.
• [3] Bae, K. H., Karolyi, G., and Stulz, R. M. A new approach to measuring financial contagion. Review of Financial Studies 16, 3 (2003), 717–763.
• [4] Bai, J., and Perron, P. Estimating and testing linear models with multiple structural changes. Econometrica 66, 1 (1998), 47–78.
• [5] Bai, J., and Perron, P. Computation and analysis of multiple structural changes model. Journal of Applied Econometrics 18, 1 (2003), 1–22.
• [6] Baig, T., and Goldfajn, I. Financial market contagion in the Asian crisis. IMF Staff Papers, 46, 2 (1999), 167-195. Working Paper WP/98/155, International Monetary Fund, 1999.
• [7] Baur, D. G. Financial contagion and the real economy. Journal of Banking and Finance 36, 10 (2012), 2680–2692.
• [8] Bauwens, L., Laurent, S., and Rombouts, J. V. K. Multivariate GARCH models: A survey. Journal of Applied Econometrics 21, 1 (2006), 79–109.
• [9] Bekaert, G., Ehrmann, M., Fratzscher, M., and Mehl, A. J. Global crises and equity market contagion. Working Paper 17121, National Bureau of Economic Research, Cambridge, MA, 2011.
• [10] Bollerslev, T. Generalized autoregressive conditional heteroskedasticity. Journal of Econometrics 31, 3 (1986), 307–327.
• [11] Bollerslev, T. Modelling the coherence in short-run nominal exchange rates: A multivariate generalized ARCH model. The Review of Economics and Statistics 72, 3 (1990), 498–505.
• [12] Cappiello, L., Engle, R. F., and Sheppard, K. Asymmetric dynamics in the correlations of global equity and bond returns. Journal of Financial Econometrics 4, 4 (2006), 537–572.
• [13] Celik, S. The more contagion effect on emerging markets: the evidence of DCC-GARCH model. Economic Modelling 29, 5 (2012), 1946–1959.
• [14] Corbet, S., Larkin, C., and Lucey, B. The contagion effects of the COVID-19 pandemic: evidence from gold and cryptocurrencies. Financial Research Letters 35 (2020), 101554.
• [15] Dungey, M., Fry, R., González-Hermosillo, B., and Martin, V. L. Empirical modelling of contagion: A review of methodologies. Quantitative Finance 5, 1 (2005), 9-24.
• [16] Dungey, M., and Gajurel, D. Equity market contagion during the global financial crisis: Evidence from the world’s eight largest economies. Economic Systems 38, 2 (2014), 161–177.
• [17] Eichengreen, B., Rose, A. K., and Wyplosz, C. Contagious currency crises. Working Paper 5681, National Bureau of Economic Research, Cambridge, MA, 1996.
• [18] Engle, R. F. Autoregressive conditional heteroskedasticity with estimates of the variance of United Kingdom inflation. Econometrica 50, 4 (1982), 987–1007.
• [19] Engle, R. F. Dynamic conditional correlation: A simple class of multivariate generalized autoregressive conditional heteroskedasticity models. Journal of Business and Economic Statistics 20, 3 (2002), 339–350.
• [20] Engle, R. F., and Ng, V. K. Measuring and testing the impact of news on volatility. The Journal of Finance 48, 5 (1993), 1749–1778.
• [21] Favero, C. A., and Giavazzi, F. Is the international propagation of financial shocks non-linear? Evidence from the ERM. Journal of International Economics 57, 1 (2002), 231–246.
• [22] Fernandez, C., and Steel, M. F. On Bayesian modeling of fat tails and skewness. Journal of the American Statistical Association 93, 441 (1998), 359–371.
• [23] Forbes, K. J., and Rigobon, R. No contagion, only interdependence: Measuring stock market comovements. The Journal of Finance 57, 5 (2002), 2223–2261.
• [24] Glosten, L. R., Jagannathan, R., and Runkle, D. E. On the relation between the expected value and the volatility of the nominal excess return on stocks. The Journal of Finance 48 (1993), 1779–1801.
• [25] Goetzmann, W. N., Li, L., and Rouwenhorst, K. G. Long-term global market correlations. The Journal of Business 78, 1 (2005), 1–38.
• [26] King, M. A., and Wadhwani, S. Transmission of volatility between stock markets. Review of Financial Studies 3, 1 (1990), 5–33.
• [27] Nelsen, R. B. An Introduction to Copulas. Springer-Verlag, New York, 2006.
• [28] Silvennoinen, A., and Teräsvirta, T. Multivariate GARCH models. In Handbook of Financial Time Series, T. G. Andersen, R. A. Davis, J.-P. Kreiß and T. Mikosch, Eds., Springer, Berlin, 2009, pp. 201–229.
• [29] Sklar, A. Fonctions de répartition à n dimensions et leurs marges. Publications de l’Institut Statistique de l’Université de Paris 8 (1959), 229–231.
• [30] Stoupos, N., and Kiohos, A. Euro area stock markets integration: Empirical evidence after the end of 2010 debt crisis. Finance Research Letters 46, Part B, (2021), 102423.
• [31] Yeyati, E. L., and Filippini, F. Social and economic impact of COVID-19. Brookings Global Working Paper 158, Brookings Institution, Washington, DC, 2021.
• [32] Zakoian, J.-M. Threshold heteroskedastic models. Journal of Economic Dynamics and Control 18, 5 (1994), 931–955.

Identifiers

DOI

10.37190/ord230104

Biblioteka Nauki

2204099