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.
BAELE, L. (2005). Volatility Spillover Effects in European Equity Markets, Journal ofFinancial and Quantitative Analysis 40(2), Pp. 373-401.
BEINE, J., CAPORALE, G.M., GHATTAS, M. S., SPAGNOLO, N. (2010). Global and regional spillovers in emerging stock markets: A multivariate GARCH-in-mean analysis. Emerging Markets Review, 11(2) Pp. 250-260.
BOLLERSLEV, T. (1986). Generalized Autoregressive Conditional Heteroskedasticity, Journal of Econometrics 31(3), Pp. 307-327.
BROOKS, C., (2008). Introductory Econometrics for Finance, Cambridge, University press, Pp.170-174.
CHRISTIANSEN, C. (2004). Decomposing European Bond and Equity Volatility, Working paper, F -2004-01 Finance Research Group, Aarhus School of Business.
GILMORE, C. G., LUCEY, B. M., MCMANUS, G. B., (2006). The dynamics of Central European equity market comovements” The Quarterly Review of Economicsand Finance, vol.48 (1) Pp. 605-622. DOI:10.1016/j.qref.2006.06.005.
ENGLE, R. F. (1982). Autoregressive Conditional Heteroskedasticity with Estimates of the Variance of United Kingdom Inflation, Econometrica, vol. 50 (4), Pp., 987-1007.
ENGLE, R. F., NG, K.V. (1993). Measuring and testing the impact of news on volatility. The Journal of Finance, Vol.48, (5), pp. 1749-1778. DOI: 10.1111/j.1540-6261.1993.tb05127.x.
GOETZMANN, W., IBBOTSON, G.R. (2006). The equity risk premium: Essays andexplorations. Oxford University Press, pp. 368-367.
HAMAO, Y., MASULIS, R., NG, K.V. (1990). Correlation in prices changes and volatility across international stock markets, The Review of Financial Studies 3(2) Pp. 281-307.
KASMAN, A., KASMAN, S., TORUN, E. (2009). Dual long memory property in returns and volatility: Evidence from the CEE countries’ stock markets, EmergingMarkets Review. 9(4) Pp.122-139. DOI: 10.1016/j.ememar.2009.02.002.
KOCENDA, E., HANOUSEK, J. (2010). Foreign News and Spillovers in Emerging European Stock Markets, William Davidson Institute Working Paper, 983.
GILMORE C.G., MCMANUS, M.G. (2002). International portfolio diversification: US and Central European equity markets, Emerging Markets Review.3(1), pp. 69-83. DOI: 10.1016/S1566-0141(01)00031-0.
ÉGERT, B., KOUBAA, Y. (2004). Modelling Stock Returns in the G-7 and in Selected CEE economies: A Non-linear GARCH Approach. William Davidson Institute WorkingPaper, No. 663.
DVORAK, T., PODPIERA, R. (2006). European Union Enlargement and Equity Markets in Accession Countries. Emerging Markets Review, Vol. 7 (2), Pp.129-146.
NG, A., (2000). Volatility Spillover Effects from Japan and the US to the Pacific-Basin. Journal of International Money and Finance, 19 (2) Pp. 207-233. DOI: 10.1016/S0261-5606(00)00006-1.
ROCKINGER, M., URGA, G. (2001). The evolution of stock markets in transition economies. The Journal of Business & Economic Statistics, vol. 19, pp.73-84. DOI: 10.1006/jcec.2000.1669.
WALTER, E. (2010). Applied Econometric times Series. John Wiley & Sons, Inc., pp.155-156.