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Contagion and Dynamic Correlation of the Main European Stock Index Futures Markets: A Time-frequency Approach

Claudiu Albulescu (), Daniel Goyeau and Aviral Tiwari ()
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Daniel Goyeau: CRIEF - Centre de Recherche sur l'Intégration Economique et Financière - Université de Poitiers, Axe 2 : « Marchés, Cultures de consommation, Autonomie et Migrations » (MSHS Poitiers) - MSHS - Unite mixte de service maison des sciences de l'homme et de la société de Poitiers - Université de Poitiers - CNRS - Centre National de la Recherche Scientifique

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Abstract: In this paper, we examine the financial contagion and dynamic correlation between three European stock index futures, namely FTSE 100, DAX 30 and CAC 40. For this purpose we resort to a continuous wavelet transform framework and we cover the aftermath of the sovereign debt crisis period. More precisely, we analyze the power spectrum of the series, the wavelet coherency and the average dynamic correlation before and after turbulence episodes occurred after the outburst of the sovereign debt crisis. Our results show that the stock index futures are highly correlated and this correlation increases around financial distress episodes. The contagion phenomenon, associated with a high-frequency correlation, manifested especially after the additional rescue package awarded to Greece. All in all, the dynamic correlation is influenced by the frequency decomposition level and fluctuates considerably in the very long-run.

Keywords: Wavelets; Portfolio diversification; Contagion; Stock index futures; European financial markets integration (search for similar items in EconPapers)
Date: 2015
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01376756
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Published in Procedia Economics and Finance, Elsevier, 2015, Globalization and Higher Education in Economics and Business Administration - GEBA 2013, 20, pp.19 - 27. <10.1016/S2212-5671(15)00042-8>

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Working Paper: Contagion and Dynamic Correlation of the Main European Stock Index Futures Markets: A Time-frequency Approach (2015)
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