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The Spillover Effect on the CEE Equity Markets and the Financial Contagion in the Context of Financial Integration

Author

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  • contact_cb@yahoo.com.

    (Aurel Vlaicu University of Arad)

  • Simona STAMULE

    (Technical University of Civil Engineering of Bucharest)

  • Iulian Cornel LOLEA

    (Bucharest University of Economic Studies. Corresponding author.)

Abstract

The purpose of this paper is to analyze the contagion effect between the equity markets in some of the CEE countries, namely Hungary, Poland, the Czech Republic, Romania, and Bulgaria, as compared to the Euro Zone. In this paper, we focus on the volatility transmission during the crisis period using the spillover index introduced by Diebold and Yilmaz (2009, 2012), which measures both total and directional volatility spillovers in a generalized VAR framework that eliminates the possible dependence of results on ordering. Also, we have used a DCC-GARCH approach to follow conditional correlations between markets. Because all our initial expectations were confirmed, the results should be taken into consideration by investors, who should take caution when investing in the CEE equity markets as well as when diversifying their portfolios to minimize risk.

Suggested Citation

  • contact_cb@yahoo.com. & Simona STAMULE & Iulian Cornel LOLEA, 2021. "The Spillover Effect on the CEE Equity Markets and the Financial Contagion in the Context of Financial Integration," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 155-170, December.
    • Handle: RePEc:rjr:romjef:v::y:2021:i:4:p:155-170
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    1. Kedžo Margareta Gardijan, 2022. "COVID-19 pandemic impact on investment prospective in selected CEE stock markets: A stochastic dominance approach," Croatian Review of Economic, Business and Social Statistics, Sciendo, vol. 8(2), pages 28-42, December.

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    More about this item

    Keywords

    volatility; risk; contagion; financial markets; European Union; correlation; time series;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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