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Capital Market Contagion in the Stock Markets of Visegrád Countries Based on the Heckman Selection Model

Author

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  • Máté Csiki

    (University of Szeged)

  • Gábor Dávid Kiss

    (University of Szeged)

Abstract

In our study, we examine contagions materialising between the stock market indices of three countries in the Visegrád region – Poland, Czech Republic, Hungary – and selected developed countries – USA and Germany. The sample covers the period between 1997 and 2017, which includes a number of events that caused major financial and capital market turbulences in past decades, the effects of which are still significant on the capital markets of the Visegrád region today. We simulated the comovement of Visegrád and developed markets with a DCC procedure, and applied the Heckman selection model – a novel technique in relevant studies – to explain the volatility of the correlation and to capture collective behaviours between the markets. Our analysis of the extreme returns of regional indices reveals increasing global integration across the regional equity markets and their exposure to the oil market. The relevance of our work is confirmed by the presence of contagions – as presented within the framework of the model – between the regional indices and the S&P500 as well as the DAX index which are caused by financial and capital market shocks, while there is also evidence of a significant impact exerted by the German stock market index on the Visegrád stock indices. Periodically and as a function of market shifts, some variance can be observed in the contagion channels, and the unique properties specific to the region can be recognised.

Suggested Citation

  • Máté Csiki & Gábor Dávid Kiss, 2018. "Capital Market Contagion in the Stock Markets of Visegrád Countries Based on the Heckman Selection Model," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 17(4), pages 23-52.
    • Handle: RePEc:mnb:finrev:v:17:y:2018:i:4:p:23-52
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    2. Mészáros Mercédesz & Kiss Gábor Dávid, 2020. "Spillover effects of unconventional monetary policy on capital markets in the shadow of the Eurozone: A sample of non-Eurozone countries," Review of Economic Perspectives, Sciendo, vol. 20(2), pages 171-195, June.

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    More about this item

    Keywords

    contagion; Heckit; equity market;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance

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