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Tail dependence in European stock markets amidst the Russo-Ukrainian war: Shifting linkages and their determinants

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  • Wojciech Grabowski
  • Jakub Janus

Abstract

This study investigates the impact of the Russo-Ukrainian war on stock market connectedness in 24 European economies. Using a framework based on Clayton copulas, we identify changes in the left-tail dependence of stock market returns between the war and pre-war periods and explore their determinants through limited dependent variable models. We find that the war-induced shifts in the market connectedness are significant but not uniform, involving both elevated left-tail linkages (financial contagion) and instances of diminished connectedness and increased market resilience. Such diverse changes can be attributed not only to cross-country differences in stock market volatilities and trade dynamics but also to countries' proximity to the warzone and their reliance on fossil-fuel imports, particularly their pre-war energy dependence on Russia. Our results highlight the need to consider these vulnerabilities in portfolio diversification strategies of international investors, as well as in financial stability policies.

Suggested Citation

  • Wojciech Grabowski & Jakub Janus, 2024. "Tail dependence in European stock markets amidst the Russo-Ukrainian war: Shifting linkages and their determinants," Working Papers REM 2024/0360, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    • Handle: RePEc:ise:remwps:wp03602024
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    File URL: https://rem.rc.iseg.ulisboa.pt/wps/pdf/REM_WP_0360_2024.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    stock markets; tail dependence; international market connectedness; financial contagion; Russia-Ukraine war.;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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