Abstract
Purpose – This article examines volatility spillovers, cross-market correlation, and comovements between selected developed and former communist emerging stock markets in the European Union. Modelling the behavioural dynamics of European stock markets represents a vital topic in a fascinating context, but also a current challenge of great interest. Research Methodology – We propose to estimate and model volatility using GARCH family models for selected European markets. We aim to explore volatility movement, presence of leverage effect/ asymmetry in selected financial markets. Findings – The econometric approach includes GARCH (1, 1) models for the sample period from 1, January 2000 to 12, July 2018. The empirical results revealed that exists a significant presence of volatility clustering in all selected financial markets except Poland and Croatia. The empirical analysis also indicates that both recent and past news generate a considerable impact on present volatility. Research limitations – Our empirical study has certain limitations regarding the relatively small number of only eight stock markets. Practical implications – It can provide a useful perspective for researchers, academics, investors, investment managers, decision-makers, and scientists. Originality/Value – The empirical analysis is focused on 8 European stock markets, which are classified as developed (Spain, UK, Germany, and France) and emerging (Poland, Hungary, Croatia, and Romania).
Highlights
The global financial crisis of 2007–2008, which, according to many experts, one of the biggest crises in the world since the crisis of the 1930s affected the American economy and the economies of many countries
The other cluster represents European emerging markets based on the daily closing price of the WIG20 index (Poland), BUX index (Hungary), CROBEX index (Croatia), and BET index (Romania)
We found a negative correlation between market movement pattern of Croatia and Germany, where Croatia contributed or follows only 10% similar movement to FTSE, contrasting movement of Germany that follows over 89% to the movement of FTSE
Summary
The global financial crisis of 2007–2008, which, according to many experts, one of the biggest crises in the world since the crisis of the 1930s affected the American economy and the economies of many countries. It has been likened to a huge tsunami that started in the United States and gradually spread to European countries and to other parts of the world, and in the meantime, even affected the economies of small countries (Park & Mercado, 2014). Following this economic crisis, various financial institutions were declared bankrupt and bought by the government or rival companies. The price index in the world’s major and small stock exchanges fell sharply. Lending and liquidity to financial institutions declined sharply. With the spread of the crisis to the real sector of the economy, economic growth decreased, and the unemployment rate in the world increased
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