Extreme Returns in the European Financial Crisis

Andreas Chouliaras and Theoharry Grammatikos

MPRA Paper from University Library of Munich, Germany

Abstract: We examine the transmission of extreme stock market returns among three groups of countries: the Euro-periphery countries (Portugal, Ireland, Italy, Greece, Spain), the Euro-core countries (Germany, France, the Netherlands, Finland, Belgium), and the major European Union -but not euro- countries (Sweden, UK, Poland, Czech Republic, Denmark). Using extreme returns on daily stock market data from January 2004 till March 2013, we find that transmission effects are present for the tails of the returns distributions for the Pre-crisis, the US-crisis and the Euro-crisis periods from the Euro-periphery group to the Non-Euro and the Euro-core groups. Within group effects are stronger in the crisis periods. We find that the transmission channel does not seem to have intensified during the crisis periods, but it transmitted larger shocks (in some cases, extreme bottom returns doubled during the crisis periods). Thus, as extreme returns have become much more "extreme" during the financial crisis periods, the expected losses on extreme return days have increased significantly. Given the fact that stock market capitalisations in these country groups are trillions of Euros, a 1% or 2% increase in extreme bottom returns (in crisis periods) can lead to aggregate losses of tens of billions Euros in one single trading day.

Keywords: Financial Crisis; Financial Contagion; Spillover; Euro-crisis; Stock Markets. (search for similar items in EconPapers)
JEL-codes: G00 G01 G15 (search for similar items in EconPapers)
Date: 2014-09-29
New Economics Papers: this item is included in nep-cfn, nep-eec and nep-fmk
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Extreme Returns in the European financial crisis (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:58978

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