Volatility Spillovers Between the U.S. and Romanian Markets: The BET–SFT-500 Dynamic Under Political Uncertainty

Kamer-Ainur Aivaz (), Lavinia Mastac (), Dorin Jula, Diane Paula Corina Vancea, Cristina Duhnea and Elena Condrea
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Kamer-Ainur Aivaz: Department of General Economy, Faculty of Economic Sciences, Ovidius University of Constanta, 900470 Constanta, Romania
Lavinia Mastac: Faculty of Economics and International Business, Bucharest University of Economic Studies, 010374 Bucharest, Romania
Dorin Jula: Institute for Economic Forecasting, Romanian Academy, 050711 Bucharest, Romania
Diane Paula Corina Vancea: Department of Finance and Accounting, Faculty of Economic Sciences, Ovidius University of Constanta, 900470 Constanta, Romania
Cristina Duhnea: Department of Finance and Accounting, Faculty of Economic Sciences, Ovidius University of Constanta, 900470 Constanta, Romania
Elena Condrea: Department of Finance and Accounting, Faculty of Economic Sciences, Ovidius University of Constanta, 900470 Constanta, Romania

Risks, 2025, vol. 13, issue 8, 1-38

Abstract: This paper analyzes the volatility relationship between the Romanian BET index and the U.S. SFT-500 index during the period 2019–2024, with a particular focus on the impact of political and geopolitical shocks. The study investigates whether financial markets in emerging economies react symmetrically or asymmetrically to external shocks originating from mature markets, especially during periods of political uncertainty. The research period includes four major systemic events: the COVID-19 pandemic, the military conflict in Ukraine, the 2024 U.S. presidential elections, and the 2024 Romanian elections, all of which generated significant volatility in global markets. The methodological approach combines time series econometrics with the Impulse Indicator Saturation (IIS) technique to identify structural breaks and outliers, without imposing exogenous assumptions about the timing of events. The econometric model includes autoregressive and lagged exogenous variables to estimate the influence of the SFT-500 index on the BET index, while IIS variables capture unanticipated political and economic shocks. Additionally, a Fractionally Integrated GARCH (FIGARCH) specification is applied to model the persistence of volatility over time, capturing the long-memory behavior often observed in emerging markets like Romania. The results confirm a statistically significant but partial synchronization between the two markets, with lagged and contemporaneous effects from the SFT-500 index on the BET index. Volatility in Romania is markedly higher and longer-lasting during domestic political episodes, confirming that local factors are a primary source of market instability. For investors, this underscores the need to embed political risk metrics into emerging market portfolios. For policymakers, it highlights how stronger institutions and transparent governance can dampen election- and crisis-related turbulence.

Keywords: financial volatility; political uncertainty; BET; SFT-500; exogenous impulses; emerging markets; econometric modeling; IIS (Impulse Indicator Saturation) (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2025
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