What is Behind Extreme Negative Returns co-movement in the South Eastern European Stock Markets?

Dragan Tevdovski, Viktor Stojkoski

Abstract


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.


Keywords


cco-movement; contagion; stock markets; emerging markets; South Eastern Europe.

JEL Codes


C25; F36; G15.

Full Text:

PDF

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

Äukić, D., and Äukić, 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




DOI: http://dx.doi.org/10.47743/saeb-2021-0003

Refbacks

  • There are currently no refbacks.
10.47743/saeb-2021-0009