<abstract xmlns="http://www.w3.org/1999/xhtml"><p>The paper investigates mean and volatility spillover effects from the U.S and EU stock markets as well as oil price market into national stock markets of eight European countries. The study finds strong indication of volatility spillover effects from the US-global, EU-regional, and the world factor oil towards individual stock markets. While both mean and volatility spillover transmissions from the US are found to be significant, EU mean spillover effects are negligible. To evaluate the magnitude of volatility spillovers, the variance ratios are also computed and the results draw to attention that the individual emerging countries’ stock returns are mostly influenced by the U.S volatility spillovers rather than EU or oil markets. Additionally, examination of only global and regional stock markets spillover transmissions into European stock markets also confirms the dominating presence of the U.S spillover transmissions. Furthermore, I also implement asymmetric tests on stock returns of eight markets. The stock market returns of Hungary, Poland, Russia and the Ukraine are found to respond asymmetrically to negative and positive shocks in the US stock returns. The weak evidence of asymmetric effects with respect to oil market shocks is found only in the case of Russia and the quantified variance ratios indicate that presence of oil market shocks are relatively higher for Russia. Moreover, a model with dummy variable confirms the effect of European Union enlargement on stock returns only for Romania. Finally, a conditional model suggests that the spillover effects are partially explained by instrumental macroeconomic variables, out of which exchange rate fluctuations play the key role in explaining the spillover parameters rather than total trade to GDP ratios in most investigated countries.</p></abstract>

The paper investigates mean and volatility spillover effects from the U.S and EU stock markets as well as oil price market into national stock markets of eight European countries. The study finds strong indication of volatility spillover effects from the US-global, EU-regional, and the world factor oil towards individual stock markets. While both mean and volatility spillover transmissions from the US are found to be significant, EU mean spillover effects are negligible. To evaluate the magnitude of volatility spillovers, the variance ratios are also computed and the results draw to attention that the individual emerging countries’ stock returns are mostly influenced by the U.S volatility spillovers rather than EU or oil markets. Additionally, examination of only global and regional stock markets spillover transmissions into European stock markets also confirms the dominating presence of the U.S spillover transmissions. Furthermore, I also implement asymmetric tests on stock returns of eight markets. The stock market returns of Hungary, Poland, Russia and the Ukraine are found to respond asymmetrically to negative and positive shocks in the US stock returns. The weak evidence of asymmetric effects with respect to oil market shocks is found only in the case of Russia and the quantified variance ratios indicate that presence of oil market shocks are relatively higher for Russia. Moreover, a model with dummy variable confirms the effect of European Union enlargement on stock returns only for Romania. Finally, a conditional model suggests that the spillover effects are partially explained by instrumental macroeconomic variables, out of which exchange rate fluctuations play the key role in explaining the spillover parameters rather than total trade to GDP ratios in most investigated countries.

To What Extent are Stock Returns Driven by Mean and Volatility Spillover Effects? – Evidence from Eight European Stock Markets

Lund University, Department of Economics, P.O. Box 7082 S-220 07 Lund, Sweden

Review of Economic Perspectives

The paper investigates mean and volatility spillover effects from the U.S and EU stock markets as well as oil price market into national stock markets of eight...

To What Extent are Stock Returns Driven by Mean and Volatility Spillover Effects? – Evidence from Eight European Stock Markets

Published Online: Apr 20, 2013

Page range: 3 - 29

DOI: https://doi.org/10.2478/v10135-012-0013-7

Keywords
Stock markets, the U.S, E.U, volatility spillovers, emerging markets, mean, oil price, exchange rates, asymmetric effects

This content is open access.

To What Extent are Stock Returns Driven by Mean and Volatility Spillover Effects? – Evidence from Eight European Stock Markets

Published Online: Apr 20, 2013

Page range: 3 - 29

DOI: https://doi.org/10.2478/v10135-012-0013-7

KeywordsStock markets, the U.S, E.U, volatility spillovers, emerging markets, mean, oil price, exchange rates, asymmetric effects

This content is open access.

Keywords
Stock markets, the U.S, E.U, volatility spillovers, emerging markets, mean, oil price, exchange rates, asymmetric effects