European Stock Indices Research Articles

COVID-19 SHOCK: THE SHORT-TERM IMPACT ON THE EUROPEAN AND AMERICAN FINANCIAL MARKETS

The new coronavirus has very seriously shaken the behavior of global financial markets. Globally, the COVID-19 shock is considered severe, even compared to the Great Financial Crisis that took place in 2007-2008. Considering the persistence of the virus, this study is designed to investigate the short-term impact of COVID-19 upon financial markets of Europe and the United States (US) in the entire year of 2020. In the research we used daily data from the period 1st January – 31st December 2020 and linear regression. The stock markets indices selected in the sample were: European stock indices DAX30, FTSE100 and CAC40 and the American stock indices DJI and S&P500. The study’s results showed that there is a significant relationship between the number of new daily cases of COVID-19 and the considered stock market indices. But there is a much stronger correlation between oil prices and stock indices than between the number of COVID-19 new cases and stock indices. We conclude that the market has been intensely agitated at a terrible level. The American, London, French and German stock markets reacted negatively to the increase in confirmed cases of COVID-19 and to the price of oil. So, the market reaction with respect to the number of COVID-19 new daily cases is significant.

The Benefits of Workforce Well-Being on Profitability in Listed Companies: A Comparative Analysis between Europe and Mexico from an ESG Investor Perspective

This paper evaluates the relationship between investing in workforce well-being and profitability of listed companies in Mexico compared to European companies from an Environmental, Social, and Governance (ESG) investor perspective. In this case, the Refinitiv workforce score or High-Performance Work Policies (HPWP) is used as an indicator of the quality of workforce well-being by including the industry effects (economic and business sectors) and the behavioral (sentiment) factors as control variables. Specifically, this article examines the relationships between HPWP, stock price changes (measured as a percentage), profitability (ROE), and market risk (betas). We used a sample of companies from the Refinitiv Mexico and European stock indices for this purpose. In the Mexican case, the results show that a higher level of well-being promotion relates to better company profits. The opposite happens in European companies. Regarding market prices, European companies show higher prices when they have higher HPWP and Mexican companies confirm the opposite. Regarding market risk, only European basic materials with high HPWP show less risk. Finally, in almost all Mexican business sectors, the relationship between market risk and workforce well-being is negative.

The Effect of Seasonal Depression on Stock Market Returns

The study analyses the statistical relationship between the degree of seasonal depression and stock index returns. For this analysis, we examine the daily returns of two US and five European stock indices using OLS regression. The analysis found a statistically significant relationship between seasonal depression and the change in returns. However, due to the limited use of the reduced form, this only confirms the link between seasonal depression and returns, and further observations would be required to confirm a causal relationship.

How to hedge extreme risk of natural gas in multivariate semiparametric value-at-risk portfolio?

The COVID-19 pandemic and the war in Ukraine have caused huge price changes in the natural gas market. This paper tries to minimise the extreme risk of natural gas, making two sixasset portfolios, where gas is combined with five developed and emerging European stock indices. We observe extreme risk from the aspect of classical parametric Value-at-Risk measure, but we also propose a new approach and optimise portfolios with semiparametric VaR as a target. Estimating the equicorrelation of the two portfolios, we determine that the emerging indices portfolio has a much lower level of integration, which is good for portfolio construction. Additionally, we divide the full sample into the pre-crisis and crisis periods to assess how portfolios look in the two intrinsically different subsamples. According to the results, both portfolios with the developed and emerging stock indices minimise extreme risk very well, but the latter portfolio is better. In the pre-crisis period, this advantage amounts to around 6% in the min-VaR portfolio and 3.5% in the min-mVaR portfolio. However, in the crisis period, the third and fourth moments come to the fore, meaning that hedging results increase significantly in favour of the emerging indices portfolios. In other words, the min-VaR and min-mVaR results of the emerging indices portfolio are better in amounts of more than 14% and 17%, respectively, vis-à-vis portfolios with the developed stock indices. We recommend using the semiparametric VaR metric because it is far more accurate and unbiased compared to the classical VaR since it considers all the key features of portfolio distribution.

How to reduce the extreme risk of losses in corn and soybean markets? Construction of a portfolio with European stock indices

Because of the COVID-19 pandemic and the war in Ukraine, agricultural commodities had significant price increases, which inevitably implies high risk. In this article, we try to mitigate the extreme risk of corn and soybeans by constructing multivariate portfolios with developed and emerging European stock indices. We measured extreme risk via conditional value at risk. To address different goals that investors might prefer, we produced portfolios with the lowest risk and highest return-to-risk ratio. According to the results, corn and soybeans had relatively high portfolio shares. However, they are the riskiest assets because they have a very low pairwise correlation with the stock indices. Portfolios with emerging European indices had better risk-reducing results, considering both agricultural commodities because these indices are less risky than developed indices. In particular, the risk reductions of corn were 38% and 50% in the portfolios with developed and emerging stock indices, respectively, whereas, for soybeans, the results were 28% and 41%, respectively. In optimal portfolios, emerging European stock indices had the upper hand in most cases.

The stable tail dependence and influence among the European stock markets: a score-driven dynamic copula approach

This paper studies the time-varying tail dependence among the European stock markets and assesses the influence of individual financial markets. By utilizing two generalized autoregressive score (GAS) copulas, we compute the tail dependence for 11 European stock indexes and 1 American stock index over the last 16 years. Notably, it is found that the dependencies among European stock indexes are generally stable, even during the crisis periods. Then an influence measure is proposed for each individual market based on the tail dependence. Interestingly, the influence ranking is also stable for both the whole period and two big drawdown days in crisis periods. To be specific, AEX (Netherlands), FCHI (France), and GDAXI (Germany) always show the most significant influences, while SPX (USA) is always the least influential one. Finally, an equal-weighted portfolio is built to measure the systemic risk in the European stock markets. It is found that both patterns of risk (VaR) and expected shortfall (ES) are different from the time-varying tail dependence. There exist obvious inverted spikes on 16 October 2008 and 16 March 2020. The results indicate that the extreme portfolio risk does not come from the increase of dependence among European stock markets, but from the individual jumps.

Financial Contagion from the Subprime Crisis: A Copula Approach

The magnitude of the subprime crisis effects caused recessions in several economies, giving rise to the global financial crisis. The scale of this major shock and the different recovery profiles of European economies motivated this paper. The main objective is to look for evidence of contagion between the North American financial market (S&P500) and the financial markets of Portugal (PSI20), Spain (IBEX35), Greece (ATHEX) and Italy (FTSEMIB), in the South of Europe, and the financial markets of Sweden (OMXS30), Denmark (OMX2C0), Finland (OMXH25) and Norway (OsloOBX), in the North of Europe. Considering the period from January 1, 2003 to December 31, 2013, the ARMA-GARCH models were estimated to remove the autoregressive and conditional heteroscedastic effects from the time series of the daily returns. Then, the copula models were used to estimate the dependence relationships between the European stock indexes and the North American stock index, from the pre-crisis subperiod to the crisis subperiod. The results indicate financial contagion of the subprime crisis for all analyzed European countries. The North European markets intensified the relations of financial integration (both in negative and positive shocks) with the North American market, apart from the Danish against the Portuguese. In addition to the contribution made by the joint application of the ARMA-GARCH models, the findings are useful to identify channels of financial contagion between markets and to warn about the effects of possible new crisis, which will require different levels of adaptation by the companies’ financial managers and intervention by the authorities.

Volatility Spillover Effects of the US, European and Chinese Financial Markets in the Context of the Russia–Ukraine Conflict

The present study aims to investigate the volatility spillover effects in the international financial markets before and during the Russia–Ukraine conflict. The subject of this paper is the study of the influence of the recent war between Russia and Ukraine on the transmission of volatility between the American, European and Chinese stock markets using the DY methodology. The sample period for daily data is from 1 June 2019 to 1 June 2022, excluding holidays. The volatility spillover index increased during the war period, but this increase remains insignificant compared to that recorded during the COVID-19 pandemic crisis. According to the empirical results, we also found varying levels of dependence and spillover effects between the European, American and Chinese stock indices before and during the Russia–Ukraine conflict.

Content Analysis of Audit Reports in Stock Indices EURONEXT 100 vs BIST 100

The purpose of this study is to comparatively investigate the content analysis of the audit reports of the Turkish BIST 100 index and the EURONEXT 100 companies, one of the European stock indexes. In this context, the independent audit reports of the companies included in the EURONEXT 100 and BIST 100 indexes between 2016-2019 were analyzed by content analysis method in terms of selected variables. The increase in audit report pages with the effect of new regulations; Shorter report LAG time in BIST 100; shortening of LAG times over time in both indices; the existence of a large audit firm preference; insufficient representation of female supervisors in both indices; while audit firm rotation is more common in BIST, auditor change is more preferred in EURONEXT, and finally, the similarity in the reported number of KAMs and their subjects can be counted among the research results. In this context, according to the results of the research; first of all, it showed that the audit reports largely comply with the new regulations and that efforts to create a common language for auditing standards are underway. It has been observed that the audit reports compared under six headings show a great deal of similarity, but there are some differences due to legal reasons such as the validity dates of the standards in countries. And, it is hoped that the study will contribute to our national literature within the scope of comparative samples and to draw attention to BIST in the international literature.

Complexity of ECB communication and financial market trading

We empirically examine how the complexity of ECB communications affects financial market trading based on high-frequency data from European stock index futures trading between 2009 and 2017. Analysing the linguistic complexity of the ECB’s introductory statements and differentiating between press conferences with and without announcements of unconventional monetary policy measures (UMPM), we find that more complex communication, i.e. high linguistic complexity and UMPM-announcement, is associated with a lower level of contemporaneous trading activity. Moreover, complex communication leads to a temporal shift in trading activity towards the subsequent Q&A session, which suggests that Q&A sessions facilitate market participants’ information processing.

Assessing the diversification risk of a single equity market: evidence from the largest European stock indexes

Abstract Diversification of financial securities is considered a substantial element of portfolio risk. In this context, the construction of an optimal portfolio is an ongoing concern for portfolio managers. This study measures the risk–reward tradeoffs linked to the stock indexes of Germany, Spain, Italy, France, and England. First, the stock indexes are analyzed as individual portfolios and later compared to the hypothetical common equity index. The results show diversification benefits gained from a hypothetical common European stock market. Individual stock prices and trade volumes are collected weekly from January 1, 2008 to December 31, 2018. The results indicate that, on average, the most well-diversified equity indexes are IBEX35, FTSE MIB, and FTSE100. In contrast, DAX, MDAX, and CAC40 on average tend to be less diversified. The diversification risk for DAX, MDAX, and CAC40 decreases from joining a common hypothetical stock market, while for FTSE100, FTSE MIB, and IBEX it increases.

Impact of Russia’s Export Commodities on the Europe Stock Market during and before the Russia-Ukraine War

The research aim of this paper is to investigate whether futures price fluctuations of major commodities during the Russian-Ukrainian war had an increased impact on the volatility of European stock index prices and whether they better explained stock index price fluctuations compared to pre-war commodity price fluctuations. Based on the results based on empirical research data, we tried to further discuss the correlation between strategic commodities of political significance and other global financial asset prices during special periods such as war. As main research method, regression analysis was used to explore whether the price fluctuation of Russia’s main export commodities (natural gas and wheat) better explained Europe’s stock market fluctuation (represented by FTSE) during the 2022 Russian invasion of Ukraine compared to the pre-war period. We compare the correlation between the European stock index and each of the two commodities during the war and before the war. The correlation is examined by investigating whether the changes in the indicators representing the increase in explanatory power are statistically significant. Spearman rank correlation coefficient was used as a more robust version to explain the change.

CURRENT STOCK MARKET INDICATOR TRENDS AGAINST THE BACKGROUND OF COVID-19 AND THE RUSSIAN-UKRAINIAN WAR

The scientific work analyzes stock indices and how they react to external changes. Characteristic features of the main world stock indices are highlighted and described, and possible prospects for their development are revealed. The article reveals the meaning of such concepts as stock indices, considers their essence, key indicators, as well as the impact of global problems on market fluctuations. The work is devoted to the study of some of the main problems of humanity during the last decade. The authors consider how Covid- 19 and the Russian-Ukrainian war affected the stock markets. The work provides an analysis of the features and development trends of the main stock indices against the background of global events. The impact, economic and political consequences, possible threats caused by the pandemic and war, as well as prospects for the further development of the world economy are revealed. The study identifies the main problems and trends in the development of stock markets at the current stage. Covid-19 has shown how sensitive markets can be to global societal issues, including how it can significantly affect the global economy and stock indices. Also, an equally important problem considered in the article is the impact of the Russian-Ukrainian war on the economy and its further consequences are predicted. In general, the beginning of the full-scale armed aggression of the Russian Federation on the territory of Ukraine became a significant shock and challenge after the almost complete overcoming of the global Covid-19 pandemic. This discovery study examines the impact of the Covid-19 pandemic and war on USA, European, and East Asian stock indices. Our results show that changes in the background of Covid-19 and war had a significant impact on the Dow Jones, Nikkei 225, FTSE 100 and NASDAQ 100.

Impact of early COVID-19 pandemic on the US and European stock markets and volatility forecasting

This study examines the impact of early COVID-19 pandemic on U.S. and European stock indices, implied volatility (IV) indices, and forecasting accuracy of IV indices from daily data of January 2012 to December 2020, using an out-of-sample assessment of COVID-19. Our results show that COVID-19 death and recovery cases have had a significant positive impact on S&P 500, DJIA and NASDAQ 100. On the other hand, VIX, VXD and VXN show a negative association. Again, we also observe the significant impact of COVID-19 on stock trading prices and volatility expectations. Furthermore, the evidence of the point forecasts is more reliable for European IV indices than for U.S. IV indices. Finally, this study validates the informational efficiency of IV indices on the financial markets and has implications for investors regarding portfolio management and investment risk minimisation in similar future pandemic situations.

Diversification opportunities in European stock markets and their impact on textile industry development based on a financial education approach

This research study explores the diversification opportunity among 18 European stock market indices for the sample period from January 2001 to December 2019. However, financial education plays an important role in the development of the textile industry, considering the dynamics of the companies listed on the European stock exchanges. The correlation matrix, pairwise cointegration and Johansen cointegration reveal that selected 18 European stock market indices do not reduces the portfolio risk because exhibit higher positive correlation among them, and their movement pulsed in tandem. Potential investors are attracted by high investment opportunities in order to maximize their return based on portfolio diversification. Financial education can effectively contribute to the sustainable growth of the textile industry in Europe. This empirical research provides an integrated perspective on the long-term evolution of certain major European stock exchange indices. The findings have significant implications for investors interested in selecting these European stock indices in order to diversify their portfolio risk. Our study also imply that selected stock indices have been strongly affected by similar political and financial belies across Europe thus, eliminating the possibility of portfolio risk diversification.

Investigating the nexus between European major and sectoral stock indices, gold and oil during the COVID-19 pandemic.

This paper investigates the dynamic conditional linkages between the Eurostoxx50, and the Eurostoxx600 and its sub-indices with COVID-19 deaths, gold, and crude oil. The Dynamic Conditional Correlations (DCC) methodology is employed and the period examined spans from 22 January 2020 until 10 July 2020. Econometric outcomes reveal that the European stock indices are modestly-to-strongly linked with gold in a positive direction and this prevents them from abrupt falls during the pandemic. Nevertheless, weak positive linkages of indices with oil are detected. Sectors of major importance such as the energy sector, financial services, banks, automobiles and parts, and basic resources are mostly influenced by gold and oil. Notably, the impact of COVID-19 deaths on major European markets is rather indirect. These findings inform interested investors in order to ameliorate their risk–return tradeoff during the pandemic bear market.Supplementary InformationThe online version contains supplementary material available at 10.1007/s43546-021-00060-x.

Top Management Support in the Implementation of Industry 4.0 and Business Digitization: The Case of Companies in the Main European Stock Indices

Top management support is one of the key aspects in the implementation of Industry 4.0 and business digitization, whereas communication is essential to aligning and driving an organization in this task. However, to date, no research has addressed this support from this perspective. To fill this gap, we take a sample of companies (N=159) listed on the 5 main stock indices in the European Union, and we qualitatively examine the letters issued by chief executive officers and other top managers in their annual reports. We assess whether, to which extent and under which motivations and barriers, the senior management of these companies are supporting this implementation through their discourse. Among other relevant findings, our results show that barely half of the managers make explicit their strong support for this implementation, as a kind of widespread spatial myopia that serves as a meta-barrier in this implementation. In addition, the support given by top executives is mostly driven by business and customer motivations; in turn, they generally fail to present sustainability within their main motivations. Overall, this paper offers a series of relevant contributions and insights with managerial implications taken from a novel approach in this field.

Is there a shift contagion among stock markets during the COVID-19 crisis? Further insights from TYDL causality test

ABSTRACT Using the Toda-Yamamoto-Dolado-Lütkepohl measure of causality, namely the TYDL procedure, which is reliable whatever the variables’ integration order, this study attempts to investigate the existence of shift contagion effect between a set of global, regional, country and US sectoral indices during the COVID-19 crisis. The empirical findings not only reveal that the Chinese stock index has no influence on the rest of the studied stock market indices during the COVID-19 crisis, but also that the European stock index seems to become the major node influencing the market sentiment and, therefore, the other indices during the crisis.

Impact of Early COVID-19 Pandemic on the US and European Stock Markets and Volatility Forecasting

This study examines the impact of COVID-19 on US and European stock indexes, implied volatility (IV) indices, and proposes forecasting accuracy of IV indices form daily data of March 2005 to May 2020, having an out-of-sample assessment of COVID-19. The empirical findings of Canonical Correlation Analysis (CCA) contribute significant insight into COVID-19 over the US and European stock indexes. This result shows that the death and recovery cases of COVID-19 have a significant positive impact of VIX, VXD, and VXN; however, the S&P 500, DJIA, and NASDAQ 100 show a negative association. Again, we also observe the significant impact of COVID-19 in stock trading prices and volatility expectations. The evidence of the point forecasts is more reliable for European IV indices than the US IV indices. Finally, this study validates IV indices' informational efficiency in the financial markets and suggests investors about portfolio management and investment risk minimization for similar future pandemic situations.

On the stationarity of futures hedge ratios

Stationarity of hedge ratios can be viewed as a first step for portfolio hedging since it represents that the sensitivity of spot and Future returns follow a process whose main characteristics do not depend on time. However, we provide evidence that the hedge ratios of the main European stock indices are better described as a combination of two different mean-reverting stationary processes, which depend on the state of the market. Also, when analysing the dynamics of hedge ratios at intraday level, results display a similar picture suggesting that intraday dynamics of the hedge between spot and Future are driven mainly by market participants with similar perspectives of the investment horizon.