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How Does the Financial Crisis Affect Volatility Behavior and Transmission Among European Stock Markets?
IRG Institute, University Paris-Est-Marne la Vallée, 5 Boulevard, Descartes-Champs-sur-Marne 77454, France
Department of Finance, France Business School, Campus Amiens, 18, place Saint-Michel, Amiens 80038, France
EconomiX, University of Paris West – Nanterre La Défense, 200 avenue de la République, Nanterre 92001, France
IPAG Lab, IPAG Business School, 184, boulevard Saint-Germain, Paris 75006, France
* Author to whom correspondence should be addressed.
Received: 24 June 2013; in revised form: 24 July 2013 / Accepted: 2 August 2013 / Published: 13 August 2013
Abstract: The spread of the global financial crisis of 2008/2009 was rapid, and impacted the functioning and the performance of financial markets. Due to the importance of this phenomenon, this study aims to explain the impact of the crisis on stock market behavior and interdependence through the study of the intraday volatility transmission. This paper investigates the patterns of linkage dynamics among three European stock markets—France, Germany, and the UK—during the global financial crisis, by analyzing the intraday dynamics of linkages among these markets during both calm and turmoil phases. We apply a VAR-EGARCH (Vector Autoregressive Exponential General Autoregressive Conditional Heteroscedasticity) framework to high frequency five-minute intraday returns on selected representative stock indices. We find evidence that interrelationship among European markets increased substantially during the period of crisis, pointing to an amplification of spillovers. In addition, during this period, French and UK markets herded around German market, possibly explained by behavior factors influencing the stock markets on or near dates of extreme events. Germany was identified as the hub of financial and economic activity in Europe during the period of study. These findings have important implications for both policymakers and investors by contributing to better understanding the transmission of financial shocks in Europe.
Keywords: stock market behavior; volatility spillover; financial crisis; high frequency data
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Ben Slimane, F.; Mehanaoui, M.; Kazi, I.A. How Does the Financial Crisis Affect Volatility Behavior and Transmission Among European Stock Markets? Int. J. Financial Stud. 2013, 1, 81-101.
Ben Slimane F, Mehanaoui M, Kazi IA. How Does the Financial Crisis Affect Volatility Behavior and Transmission Among European Stock Markets? International Journal of Financial Studies. 2013; 1(3):81-101.
Ben Slimane, Faten; Mehanaoui, Mohamed; Kazi, Irfan A. 2013. "How Does the Financial Crisis Affect Volatility Behavior and Transmission Among European Stock Markets?" Int. J. Financial Stud. 1, no. 3: 81-101.