What is Behind Extreme Negative Returns co-movement in the South Eastern European Stock Markets?
DOI:
https://doi.org/10.47743/saeb-2021-0003Keywords:
co-movement, contagion, stock markets, emerging markets, South Eastern EuropeAbstract
This paper examines co-movement of extreme returns in eight South Eastern European (SEE) stock markets during the period covering both the financial crisis from 2007-2009 and the COVID-19 health crisis. The analysis is based on coexceedances which represent the number of joint occurrences of extreme returns in a group of stock market indexes. To provide a valuable insight on how persistence, asset class, and volatility effects are related with the coexceedances, we utilize a multinomial logistic regression procedure. We find evidence in favour of the continuation hypothesis. However, the factors associated with the coexceedances differ between the SEE European Union (EU) members and the SEE EU accession countries. The EU members are more dependent on signals from major EU economies, while the accession countries are mainly impacted by regional signals. The implications of our analysis may help policy makers in understanding the nature of shock transmission in SEE stock markets.
JEL Codes - C25; F36; G15
References
Bae, K. H., Karolyi, G. A., and Stulz, R. M., 2003. A new approach to measuring financial contagion. Review of Financial Studies, 16(3), 717-763. http://dx.doi.org/10.1093/rfs/hhg012
Baker, S. R., Bloom, N., Davis, S. J., Kost, K., Sammon, M., and Viratyosin, T., 2020. The unprecedented stock market reaction to COVID-19. Review of Asset Pricing Studies, 10(4), 742-758. http://dx.doi.org/10.1093/rapstu/raaa008
Baranová, Z., 2018. Coexceedance in financial markets of countries trying to join the European Union. Univerzita Karlova, Fakulta sociálních věd. Retrieved from http://hdl.handle.net/20.500.11956/102437
Basnarkov, L., Stojkoski, V., Utkovski, Z., and Kocarev, L., 2019. Correlation patterns in foreign exchange markets. Physica A, 525, 1026-1037. http://dx.doi.org/10.1016/j.physa.2019.04.044
Basnarkov, L., Stojkoski, V., Utkovski, Z., and Kocarev, L., 2020. Lead-lag relationships in foreign exchange markets. Physica A, 539, 122986. http://dx.doi.org/10.1016/j.physa.2019.122986
Baur, D., and Schulze, N., 2005. Coexceedances in financial markets--A quantile regression analysis of contagion. Emerging Markets Review, 6(1), 21-43. http://dx.doi.org/10.1016/j.ememar.2004.10.001
Beck, K., and Stanek, P., 2019. Globalization or regionalization of stock markets? The Case of central and eastern European countries. Eastern European Economics, 57(4), 317-330. http://dx.doi.org/10.1080/00128775.2019.1610895
Christiansen, C., and Ranaldo, A., 2009. Extreme coexceedances in new EU member states' stock markets. Journal of Banking & Finance, 33(6), 1048-1057. http://dx.doi.org/10.1016/j.jbankfin.2008.10.014
Dajcman, S., 2014. Was there a contagion between major European and Croatian stock markets? An analysis of co-exceedances. Economic research. Ekonomska Istrazivanja, 27(1), 155-168. http://dx.doi.org/10.1080/1331677X.2014.952110
Đukić, D., and Đukić, M., 2015. Interdependencies of markets in Southeastern Europe and buyback of shares on shallow capital markets: The application of cointegration and causality tests. Panoeconomicus, 62(4), 469-491. http://dx.doi.org/10.2298/PAN1504469D
Dungey, M., Fry, R., Gonzalez-Hermosillo, B., and Martin, V. L., 2005. Empirical modelling of contagion: A review of methodologies. Quantitative Finance, 5(1), 9-24. http://dx.doi.org/10.1080/14697680500142045
Elliott, M., Golub, B., and Jackson, M. O., 2014. Financial networks and contagion. The American Economic Review, 104(10), 3115-3153. http://dx.doi.org/10.1257/aer.104.10.3115
Gjika, D., and Horvath, R., 2013. Stock market comovements in Central Europe: Evidence from the asymmetric DCC model. Economic Modelling, 33, 55-64. http://dx.doi.org/10.1016/j.econmod.2013.03.015
Gradojevic, N., and Dobardzic, E., 2013. Causality between regional stock markets: A frequency domain approach. Panoeconomicus, 60(5), 633-647. http://dx.doi.org/10.2298/PAN1305633G
Guidi, F., and Ugur, M., 2014. An analysis of South-Eastern European stock markets: Evidence on cointegration and portfolio diversification benefits. Journal of International Financial Markets, Institutions and Money, 30, 119-136. http://dx.doi.org/10.1016/j.intfin.2014.01.007
Harkmann, K., 2014. Stock market contagion from Western Europe to Central and Eastern Europe during the crisis years 2008-2012. Eastern European Economics, 52(3), 55-65. http://dx.doi.org/10.2753/EEE0012-8775520303
Horvath, R., and Petrovski, D., 2013. International stock market integration: Central and South Eastern Europe compared. Economic Systems, 37(1), 81-91. http://dx.doi.org/10.1016/j.ecosys.2012.07.004
Kenourgios, D., and Samitas, A., 2011. Equity market integration in emerging Balkan markets. Research in International Business and Finance, 25(3), 296-307. http://dx.doi.org/10.1016/j.ribaf.2011.02.004
Kiviaho, J., Nikkinen, J., Piljak, V., and Rothovius, T., 2014. The co-movement dynamics of European frontier stock markets. European Financial Management, 20(3), 574-595. http://dx.doi.org/10.1111/j.1468-036X.2012.00646.x
Markwat, T., Kole, E., and Van Dijk, D., 2009. Contagion as a domino effect in global stock markets. Journal of Banking & Finance, 33(11), 1996-2012. http://dx.doi.org/10.1016/j.jbankfin.2009.05.008
Nitoi, M., and Pochea, M. M., 2016. Testing financial markets convergence in Central and Eastern Europe: A non-linear single factor model. Economic Systems, 40(2), 323-334. http://dx.doi.org/10.1016/j.ecosys.2016.02.002
Reboredo, J. C., Tiwari, A. K., and Albulescu, C. T., 2015. An analysis of dependence between Central and Eastern European stock markets. Economic Systems, 39(3), 474-490. http://dx.doi.org/10.1016/j.ecosys.2015.01.002
Sensoy, A., Eraslan, V., and Erturk, M., 2016. Do sovereign rating announcements have an impact on regional stock market co-movements? The case of Central and Eastern Europe. Economic Systems, 40(4), 552-567. http://dx.doi.org/10.1016/j.ecosys.2016.02.003
Seth, N., and Panda, L., 2018. Financial contagion: review of empirical literature: Qualitative Research in Financial Markets.
Stoica, O., Perry, M. J., and Mehdian, S., 2015. An empirical analysis of the diffusion of information across stock markets of Central and Eastern Europe. Prague Economic Papers, 24(2), 192-210. http://dx.doi.org/10.18267/j.pep.508
Tilfani, O., Ferreira, P., and El Boukfaoui, M. Y., 2020. Revisiting stock market integration in Central and Eastern European stock markets with a dynamic analysis. Post-Communist Economies, 32(5), 643-674. http://dx.doi.org/10.1080/14631377.2019.1678099
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2021 SCIENTIFIC ANNALS OF ECONOMICS AND BUSINESS
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
All accepted papers are published on an Open Access basis.
The Open Access License is based on the Creative Commons license.
The non-commercial use of the article will be governed by the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License as currently displayed on https://creativecommons.org/licenses/by-nc-nd/4.0
Under the Creative Commons Attribution-NonCommercial-NoDerivatives license, the author(s) and users are free to share (copy, distribute and transmit the contribution) under the following conditions:
1. they must attribute the contribution in the manner specified by the author or licensor,
2. they may not use this contribution for commercial purposes,
3. they may not alter, transform, or build upon this work.
This work is licenced under a 
