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Cross-Country Assessment of Systemic Risk in the European Stock Market: Evidence from a CoVaR Analysis

Author

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  • Lea Petrella

    (Sapienza University of Rome)

  • Alessandro G. Laporta

    (Sapienza University of Rome)

  • Luca Merlo

    (Sapienza University of Rome)

Abstract

This work is intended to assess the contribution to systemic risk of major companies in the European stock market on a geographical basis. We use the EuroStoxx 50 Index as a proxy for the financial system and we rely on the CoVaR and $$\varDelta$$Δ-CoVaR risk measures to estimate the contribution of each European country belonging to the index to systemic risk. We also conduct the significance and dominance test to evaluate whether the systemic relevance of considered countries is statistically significant and to determine which nation exerts the greatest influence on the spreading of negative spillover effects on the entire economy. Our empirical results show that, for the period ranging from 2008 to 2017, all countries contribute significantly to systemic risk, especially in times of crisis and high volatility in the markets. Moreover, it emerges that France is the systemically riskiest country, followed by Germany, Italy, Spain and Netherlands.

Suggested Citation

  • Lea Petrella & Alessandro G. Laporta & Luca Merlo, 2019. "Cross-Country Assessment of Systemic Risk in the European Stock Market: Evidence from a CoVaR Analysis," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 146(1), pages 169-186, November.
    • Handle: RePEc:spr:soinre:v:146:y:2019:i:1:d:10.1007_s11205-018-1881-8
    DOI: 10.1007/s11205-018-1881-8
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