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Correlations and Turbulence of the European Markets

Author

Listed:
  • Laurentiu Dumitru ANDREI

    (University of Economic Studies, Bucharest, Romania)

  • Petre BREZEANU

    (University of Economic Studies, Bucharest, Romania)

  • Sorin-Marius DINU

    (Institute for Economic Forecasting, Romanian Academy)

  • Tiberiu DIACONESCU

    (Institute for Economic Forecasting, Romanian Academy)

  • Constantin ANGHELACHE

    (University of Economic Studies, Bucharest, Romania)

Abstract

This paper uses stock market data to compute the turbulence index at the European level. We also compute the dynamic matrix of correlations for all pairs of country indices in our sample. Running regressions of the turbulence index on dynamic correlations we attempt to identify the extent to which some particular pairs of correlations may influence the turbulence index more than others, on average. We can therefore infer that portfolios that contain the pairs of indices with the highest explanatory power will have higher exposure to systemic risk when compared with compares that do not contain the respective pairs.

Suggested Citation

  • Laurentiu Dumitru ANDREI & Petre BREZEANU & Sorin-Marius DINU & Tiberiu DIACONESCU & Constantin ANGHELACHE, 2019. "Correlations and Turbulence of the European Markets," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 88-100, March.
    • Handle: RePEc:rjr:romjef:v::y:2019:i:1:p:88-100
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    1. Radu LUPU & Iulia LUPU & Tanase STAMULE & Mihai ROMAN, 2022. "Entropy as Leading Indicator for Extreme Systemic Risk Events," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 58-73, December.

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    More about this item

    Keywords

    turbulence; dynamic correlations; MIDAS regression;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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