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A dynamic conditional correlation analysis of European stock markets from the perspective of the Greek sovereign debt crisis

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  • Go Tamakoshi

    () (Kobe University)

  • Yuki Toyoshima

    () (Kobe University)

  • Shigeyuki Hamori

    () (Kobe University)

Abstract

By using the asymmetric dynamic conditional correlation model developed by Cappiello et al. (2006), we examine how the time-varying correlations between Greece and other six European countries (Germany, France, UK, Ireland, Italy, and Spain) evolved from January 2007 to March 2011. The main contribution of the study is investigating whether the financial turmoil that originated from one nation's government debt market can exert contagion effects on equity markets in other countries of the region. We show that the dynamic correlations exhibited swings over time with several peaks, particularly in September 2008 and May 2010 and, interestingly, that the correlations indicated significant declines (rather than increases) during the sovereign debt crisis. The results imply that diversification opportunities between Greece and the other six European nations may have been created since the debt crisis intensified.

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File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I1-P40.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 32 (2012)
Issue (Month): 1 ()
Pages: 437-448

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Handle: RePEc:ebl:ecbull:eb-11-00485

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Keywords: dynamic conditional correlation; European stock markets; Greek sovereign debt crisis;

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References

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  1. C S Savva & D R Osborn & L Gill, 2005. "Spillovers and Correlations between US and Major European Stock Markets: The Role of the Euro," The School of Economics Discussion Paper Series 0515, Economics, The University of Manchester.
  2. Sheng-Yung Yang, 2005. "A DCC analysis of international stock market correlations: the role of Japan on the Asian Four Tigers," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 1(2), pages 89-93, March.
  3. Kenourgios, Dimitris & Samitas, Aristeidis, 2009. "Financial Market Dynamics in an Enlarged European Union," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 24, pages 197-221.
  4. Matthew Yiu & Wai-Yip Alex Ho & Daniel Choi, 2010. "Dynamic correlation analysis of financial contagion in Asian markets in global financial turmoil," Applied Financial Economics, Taylor and Francis Journals, vol. 20(4), pages 345-354.
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Cited by:
  1. Irfan Akbar Kazi & Suzanne Salloy, 2013. "Contagion effect due to Lehman Brothers’ bankruptcy and the global financial crisis - From the perspective of the Credit Default Swaps’ G14 dealers," EconomiX Working Papers 2013-6, University of Paris West - Nanterre la Défense, EconomiX.

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