 Time-varying dependence in European equity markets: A contagion and investor sentiment driven analysisMihai Niţoi and Maria Miruna Pochea Economic Modelling, 2020, vol. 86, issue C, 133-147 Abstract: In the light of the global financial crisis and sovereign debt crisis, this paper investigates the dependence patterns in 24 European equity markets from January 5, 2004 to July 1, 2016. We further examine whether these stressful events trigger contagion. Given that investors tend to behave irrationally in turmoil periods, we add to the literature by studying the effect of investor sentiment on markets correlations. Our results reveal heterogeneity in the time-varying dependence and across markets. Contagion is confirmed in turbulent times, a spillover effect from periphery euro area being detected. We find that similar sentiments increase correlations, especially in crises, suggesting that investors’ perceptions are an important channel of moving markets in the same direction. Furthermore, negative sentiments, such as fear or pessimism, amplify the linkages between markets. Our results offer useful insights to policy makers for reacting timely to financial shocks and for designing a more integrated market. Keywords: Equity market correlations; Contagion; Crisis; Investor sentiment; Generalized autoregressive score dynamic copula model (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:86:y:2020:i:c:p:133-147 DOI: 10.1016/j.econmod.2019.06.007 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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