Investor sentiment and dynamic connectedness in European markets: insights from the covid-19 and Russia-Ukraine conflict

Bruno Buchetti, Ahmed Bouteska, Murad Harasheh and Alessandro Santoni

No 3050, Working Paper Series from European Central Bank

Abstract: The primary objective of this study is to explore the dynamic relationships between equity returns or volatility and sentiment factors in European markets during both the periods preceding the COVID-19 pandemic, the COVID-19 itself, and the Russia-Ukraine war. We achieve this by applying the network methodology initially introduced by Diebold & Yilmaz (2014), along with its extensions based on realized measures and generalized forecast error variance decomposition, as proposed by Baruník & Křehlík (2018) and Chatziantoniou et al. (2023). Additionally, we investigate how the global sentiment factor influences the overall connectedness index by employing a quantile-on-quantile approach, following the methods outlined by Sim & Zhou (2015) and Bouri et al. (2022). To conduct our analysis, we utilize daily-frequency data encompassing the period from January 1, 2011, to December 31, 2023, covering the entirety of the COVID-19 pandemic in 2020 and the Russia-Ukraine conflict in 2022 across six European stock indices. Our primary discovery is the interconnectedness of both returns and sentiment. Furthermore, our resultsindicate that during the COVID-19 and Russia-Ukraine war, there is a notable increase in volatility spillovers among the analyzed stock indices, driven by the heightened interconnectedness between stock market returns. JEL Classification: G11, G12, G14, G40

Keywords: COVID-19; dynamic spillover and connectedness; European financial markets; investor sentiment; Russia-Ukraine war (search for similar items in EconPapers)
Date: 2025-04
New Economics Papers: this item is included in nep-cis, nep-eec, nep-fmk and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp3050~eb33ab7ed4.en.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20253050

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().