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Central and Eastern European Stock Exchanges under Stress: A Range-Based Volatility Spillover Framework

Author

Listed:
  • Sercan Demiralay

    () (Yeditepe University, Faculty of Commercial Sciences, Istanbul)

  • Selcuk Bayraci

    () (Yeditepe University, Faculty of Commercial Sciences, Istanbul)

Abstract

In this paper we analyze volatility spillovers among stock markets of Central and Eastern European (CEE) countries: Poland, Hungary and the Czech Republic vis-a-vis Germany, the United States and Russia. For this, we utilize the recent and original methodology of Diebold and Yilmaz (2012) consisting in total and directional spillover analyses with a conditional autoregressive range (CARR) model. The overall results suggest that propagation of volatility exists among the CEE stock markets to a certain degree (43%) and the inclusion of the two developed markets and Russia into the analysis induces a higher level of the transmission (57.5%). We also discover that volatility spillovers are strongly responsive to episodes of extreme market stress. The results of net volatility spillovers reveal increasing volatility spillovers during the US subprime mortgage crisis and the ongoing eurozone crises, particularly from Germany and the US to Poland and Hungary. Concordantly, we provide evidence of increasing financial integration of the CEE countries with the global markets as the CEE countries eventually became more vulnerable to the shocks originating in other markets. The findings of this paper have potential implications for portfolio managers and policymakers in comprehending the nature of cross-country volatility transmission over the course of time.

Suggested Citation

  • Sercan Demiralay & Selcuk Bayraci, 2015. "Central and Eastern European Stock Exchanges under Stress: A Range-Based Volatility Spillover Framework," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 65(5), pages 411-430, October.
  • Handle: RePEc:fau:fauart:v:65:y:2015:i:5:p:411-430
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    Citations

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    Cited by:

    1. RNuket Kirci Cevik & Sel Dibooglu & Ali M. Kutan, 2016. "Real and Financial Sector Studies in Central and Eastern Europe: A Review," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 66(1), pages 2-31, February.
    2. Harald Schmidbauer & Angi Rösch & Erhan Uluceviz & Narod Erkol, 2016. "The Russian Stock Market during the Ukrainian Crisis: A Network Perspective," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 66(6), pages 478-509, December.

    More about this item

    Keywords

    volatility transmission; Central and Eastern European stock markets; forecast error variance decompositions; financial crises;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G01 - Financial Economics - - General - - - Financial Crises

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