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Dynamic linkages and interdependence between Mediterranean region EMU markets during 2007 financial crisis

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  • Dimitriou, Dimitrios
  • Mpitsios, Petros
  • Simos, Theodore

Abstract

This paper examines the volatility spillover effects among Mediterranean equity markets and investigates the effects of the 2007 financial crisis. German, Greek, Spanish, Italian and Portuguese markets are investigated. German market is used as a benchmark market. We employ a multivariate generalised autoregressive conditional heteroskedasticity (MGARCH) model to identify the direction and magnitude of volatility spillovers. By using a sample of daily data from 1994 to 2009, we find evidence that before the global crisis begins, the largest impact in Mediterranean markets had the Germany market. In post-crisis period, Spain had the higher spillover effects between the other markets, followed by Germany, Italy, Portugal and Greece. Our results have implications for investors, policy makers, entrepreneurs and academicians.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 37476.

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Date of creation: Aug 2011
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Handle: RePEc:pra:mprapa:37476

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Keywords: Spillover effects; Mediterranean markets; MGARCH; BEKK model;

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  1. Ilan Goldfajn & Taimur Baig, 1999. "Financial market contagion in the Asian crisis," Textos para discussão 400, Department of Economics PUC-Rio (Brazil).
  2. Eduardo Roca, 1999. "Short-term and long-term price linkages between the equity markets of Australia and its major trading partners," Applied Financial Economics, Taylor & Francis Journals, vol. 9(5), pages 501-511.
  3. Bekaert, Geert & Harvey, Campbell R., 1997. "Emerging equity market volatility," Journal of Financial Economics, Elsevier, vol. 43(1), pages 29-77, January.
  4. Geert Bekaert & Campbell R. Harvey, 1997. "Foreign Speculators and Emerging Equity Markets," William Davidson Institute Working Papers Series 79, William Davidson Institute at the University of Michigan.
  5. Kearney, Colm & Patton, Andrew J, 2000. "Multivariate GARCH Modeling of Exchange Rate Volatility Transmission in the European Monetary System," The Financial Review, Eastern Finance Association, Eastern Finance Association, vol. 35(1), pages 29-48, February.
  6. Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
  7. Markus K. Brunnermeier, 2009. "Deciphering the Liquidity and Credit Crunch 2007-2008," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 77-100, Winter.
  8. Guglielmo Caporale & Nikitas Pittis & Nicola Spagnolo, 2006. "Volatility transmission and financial crises," Journal of Economics and Finance, Springer, vol. 30(3), pages 376-390, September.
  9. Bekaert, Geert & Harvey, Campbell R, 1995. " Time-Varying World Market Integration," Journal of Finance, American Finance Association, vol. 50(2), pages 403-44, June.
  10. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
  11. Tse, Y. K., 2000. "A test for constant correlations in a multivariate GARCH model," Journal of Econometrics, Elsevier, vol. 98(1), pages 107-127, September.
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