Paulo Alexandre – Polytechnic Institute of Setúbal, School of Business and Administration, Esce, Campus do Instituto
Politécnico de Setúbal, Estefanilha, 2914-503 Setúbal, Portugal
Paula Heliodoro – Polytechnic Institute of Setúbal, School of Business and Administration, Esce, Campus do Instituto
Politécnico de Setúbal, Estefanilha, 2914-503 Setúbal, Portugal
Rui Dias – Polytechnic Institute of Setúbal, School of Business and Administration, Esce, Campus do Instituto
Politécnico de Setúbal, Estefanilha, 2914-503 Setúbal, Portugal
DOI: https://doi.org/10.31410/LIMEN.2019.73
5th International Scientific-Business Conference – LIMEN 2019 – Leadership, Innovation, Management and Economics: Integrated Politics of Research – CONFERENCE PROCEEDINGS, Graz, Austria, December 12, 2019, published by the Association of Economists and Managers of the Balkans, Belgrade; Printed by: SKRIPTA International, Belgrade, ISBN 978-86-80194-26-4, ISSN 2683-6149, DOI: https://doi.org/10.31410/LIMEN.2019
Abstract
This research analyses the co-movements between sovereign debt markets, and the stock markets
of Germany, Portugal, and Greece, in the period 2009:10 – 2015:07. It aims to provide answers to two
questions, namely, whether: i) Was there contagion between bond markets and the Eurozone stock markets?
ii) Did the financial sector show contagion? The study used GARCH-DCC econometric models, with
the purpose of estimating the dynamic correlation between the markets, using daily data of 10-year OT
yields for Greece and Portugal, as well as price indices for Portugal (PSI-20, PSI Financial), and Germany
(DAX-30 and DAX Financial). In addition, we also evaluate the variation of the correlation in each of the
identified crisis periods against a reference period (pre-crisis). The results suggest contagion from the
Greek sovereign debt market to the Portuguese and German stock markets. We found that the Portuguese
debt market influenced the German stock market, in a market and financial sector context. In conclusion,
it is assumed that the results reveal some understanding of the behaviour of investors under extreme market
conditions and contribute to the understanding of the connection between sovereign risk and financial
sector risk by market agents, including regulators and policy-makers, who seek to ensure the stability of
the international financial system, of which the stock markets are a part of.
Keywords
Financial contagion, Stock market, Euro sovereign debt crisis, GARCH-DCC.
References
Anastasopoulos, Alexia. 2018. “Testing for Financial Contagion: New Evidence from the Greek
Crisis and Yuan Devaluation.” Research in International Business and Finance.
Antonakakis, Nikolaos, David Gabauer, and Rangan Gupta. 2019. “Greek Economic Policy
Uncertainty: Does It Matter for Europe? Evidence from a Dynamic Connectedness Decomposition
Approach.” Physica A: Statistical Mechanics and its Applications.
Beirne, John, and Marcel Fratzscher. 2013. “The Pricing of Sovereign Risk and Contagion during
the European Sovereign Debt Crisis.” Journal of International Money and Finance.
Bollerslev, Tim. 1990. “Modelling the Coherence in Short-Run Nominal Exchange Rates: A
Multivariate Generalized Arch Model.” The Review of Economics and Statistics 72(3):
498. http://www.jstor.org/stable/2109358?origin=crossref.
Dickey, David, and Wayne Fuller. 1981. “Likelihood Ratio Statistics for Autoregressive Time
Series with a Unit Root.” Econometrica 49(4): 1057–72.
Engle, Robert. 2002. “Dynamic Conditional Correlation.” Journal of Business & Economic Statistics
20(3): 339–50. http://www.tandfonline.com/doi/abs/10.1198/073500102288618487.
Finta, Marinela Adriana, Bart Frijns, and Alireza Tourani-Rad. 2019. “Time-Varying Contemporaneous
Spillovers during the European Debt Crisis.” Empirical Economics.
Gómez-Puig, Marta, and Simón Sosvilla-Rivero. 2016. “Causes and Hazards of the Euro Area
Sovereign Debt Crisis: Pure and Fundamentals-Based Contagion.” Economic Modelling.
Gonzalez-Paramo, Jose Manuel. 2011. “Sovereign Contagion in Europe.” Economic and Financial
Review 18(4): 152–66. http://www.eefclondon.org/pubs/efr.html%5Cnhttp://
search.ebscohost.com/login.aspx?direct=true&db=ecn&AN=1295568&site=ehost-live&-
scope=site.
Kenourgios, Dimitris. 2014. “On Financial Contagion and Implied Market Volatility.” International
Review of Financial Analysis 34: 21–30. http://dx.doi.org/10.1016/j.irfa.2014.05.001.
Kwiatkowski, Denis, Peter C. B. Phillips, Peter Schmidt, and Yongcheol Shinb. 1992. “Testing
the Null Hypothesis of Stationary against the Alternative of a Unit Root.” Journal of
econometrics 54(1): 159–78.
Lütkepohl, Helmut, and Markus Krätzig. 2004. Applied Time Series Econometrics Applied
Time Series Econometrics.
Noman, Abdullah M, and M Zillur Rahman. 2010. “Stationarity of South Asian Real Exchange
Rates Under Exponential Star (ESTAR) Framework.” The Journal of Developing Areas
43(2): 41–50. http://muse.jhu.edu/journals/journal_of_developing_areas/v043/43.2.noman.
html%5Cnhttp://muse.jhu.edu/journals/journal_of_developing_areas/v043/43.2.noman.
pdf.
Pentecost, Eric J., Wenti Du, Graham Bird, and Thomas Willett. 2019. “Contagion from the
Crises in the Euro-Zone: Where, When and Why?” European Journal of Finance.
Said, Said E., and David A. Dickey. 1984. “Testing for Unit Roots in Autoregressive Moving
Average Models of Unknown Order.” Biometrika 71(3): 599–607.
Tola, Albi, and Sébastien Wälti. 2015. “Deciphering Financial Contagion in the Euro Area during
the Crisis.” Quarterly Review of Economics and Finance 55: 108–23.
Tse, Y. K., and Albert K.C. Tsui. 2002. “A Multivariate Generalized Autoregressive Conditional
Heteroscedasticity Model with Time-Varying Correlations.” Journal of Business and Economic
Statistics 20(3): 351–62.
