Jump to ContentJump to Main Navigation
Show Summary Details
More options …

Review of Economic Perspectives

Národohospodárský obzor; The Journal of Masaryk University

4 Issues per year

CiteScore 2016: 0.50

SCImago Journal Rank (SJR) 2016: 0.262
Source Normalized Impact per Paper (SNIP) 2016: 0.516

Open Access
See all formats and pricing
More options …
Volume 13, Issue 1


To What Extent are Stock Returns Driven by Mean and Volatility Spillover Effects? – Evidence from Eight European Stock Markets

Abdulla Alikhanov
Published Online: 2013-04-20 | DOI: https://doi.org/10.2478/v10135-012-0013-7


The paper investigates mean and volatility spillover effects from the U.S and EU stock markets as well as oil price market into national stock markets of eight European countries. The study finds strong indication of volatility spillover effects from the US-global, EU-regional, and the world factor oil towards individual stock markets. While both mean and volatility spillover transmissions from the US are found to be significant, EU mean spillover effects are negligible. To evaluate the magnitude of volatility spillovers, the variance ratios are also computed and the results draw to attention that the individual emerging countries’ stock returns are mostly influenced by the U.S volatility spillovers rather than EU or oil markets. Additionally, examination of only global and regional stock markets spillover transmissions into European stock markets also confirms the dominating presence of the U.S spillover transmissions. Furthermore, I also implement asymmetric tests on stock returns of eight markets. The stock market returns of Hungary, Poland, Russia and the Ukraine are found to respond asymmetrically to negative and positive shocks in the US stock returns. The weak evidence of asymmetric effects with respect to oil market shocks is found only in the case of Russia and the quantified variance ratios indicate that presence of oil market shocks are relatively higher for Russia. Moreover, a model with dummy variable confirms the effect of European Union enlargement on stock returns only for Romania. Finally, a conditional model suggests that the spillover effects are partially explained by instrumental macroeconomic variables, out of which exchange rate fluctuations play the key role in explaining the spillover parameters rather than total trade to GDP ratios in most investigated countries.

Keywords: Stock markets; the U.S; E.U; volatility spillovers; emerging markets; mean; oil price; exchange rates; asymmetric effects

  • BAELE, L. (2005). Volatility Spillover Effects in European Equity Markets, Journal ofFinancial and Quantitative Analysis 40(2), Pp. 373-401.Google Scholar

  • BEINE, J., CAPORALE, G.M., GHATTAS, M. S., SPAGNOLO, N. (2010). Global and regional spillovers in emerging stock markets: A multivariate GARCH-in-mean analysis. Emerging Markets Review, 11(2) Pp. 250-260.Web of ScienceGoogle Scholar

  • BEKAERT, G., HARVEY, C.R. (1997). Emerging Equity Market Volatility, Journal ofFinancial Economics, 43(1), Pp. 29-77.Google Scholar

  • BOLLERSLEV, T. (1986). Generalized Autoregressive Conditional Heteroskedasticity, Journal of Econometrics 31(3), Pp. 307-327.CrossrefWeb of ScienceGoogle Scholar

  • BROOKS, C., (2008). Introductory Econometrics for Finance, Cambridge, University press, Pp.170-174.Google Scholar

  • CHRISTIANSEN, C. (2004). Decomposing European Bond and Equity Volatility, Working paper, F -2004-01 Finance Research Group, Aarhus School of Business.Google Scholar

  • GILMORE, C. G., LUCEY, B. M., MCMANUS, G. B., (2006). The dynamics of Central European equity market comovements” The Quarterly Review of Economicsand Finance, vol.48 (1) Pp. 605-622. DOI:10.1016/j.qref.2006.06.005.CrossrefGoogle Scholar

  • ENGLE, R. F. (1982). Autoregressive Conditional Heteroskedasticity with Estimates of the Variance of United Kingdom Inflation, Econometrica, vol. 50 (4), Pp., 987-1007.CrossrefGoogle Scholar

  • ENGLE, R. F., NG, K.V. (1993). Measuring and testing the impact of news on volatility. The Journal of Finance, Vol.48, (5), pp. 1749-1778. DOI: 10.1111/j.1540-6261.1993.tb05127.x.CrossrefGoogle Scholar

  • GOETZMANN, W., IBBOTSON, G.R. (2006). The equity risk premium: Essays andexplorations. Oxford University Press, pp. 368-367.Google Scholar

  • HAMAO, Y., MASULIS, R., NG, K.V. (1990). Correlation in prices changes and volatility across international stock markets, The Review of Financial Studies 3(2) Pp. 281-307.CrossrefGoogle Scholar

  • KASMAN, A., KASMAN, S., TORUN, E. (2009). Dual long memory property in returns and volatility: Evidence from the CEE countries’ stock markets, EmergingMarkets Review. 9(4) Pp.122-139. DOI: 10.1016/j.ememar.2009.02.002.Web of ScienceCrossrefGoogle Scholar

  • KOCENDA, E., HANOUSEK, J. (2010). Foreign News and Spillovers in Emerging European Stock Markets, William Davidson Institute Working Paper, 983.Google Scholar

  • GILMORE C.G., MCMANUS, M.G. (2002). International portfolio diversification: US and Central European equity markets, Emerging Markets Review.3(1), pp. 69-83. DOI: 10.1016/S1566-0141(01)00031-0.CrossrefGoogle Scholar

  • ÉGERT, B., KOUBAA, Y. (2004). Modelling Stock Returns in the G-7 and in Selected CEE economies: A Non-linear GARCH Approach. William Davidson Institute WorkingPaper, No. 663.Google Scholar

  • DVORAK, T., PODPIERA, R. (2006). European Union Enlargement and Equity Markets in Accession Countries. Emerging Markets Review, Vol. 7 (2), Pp.129-146.Google Scholar

  • NG, A., (2000). Volatility Spillover Effects from Japan and the US to the Pacific-Basin. Journal of International Money and Finance, 19 (2) Pp. 207-233. DOI: 10.1016/S0261-5606(00)00006-1.CrossrefGoogle Scholar

  • ROCKINGER, M., URGA, G. (2001). The evolution of stock markets in transition economies. The Journal of Business & Economic Statistics, vol. 19, pp.73-84. DOI: 10.1006/jcec.2000.1669.CrossrefGoogle Scholar

  • WALTER, E. (2010). Applied Econometric times Series. John Wiley & Sons, Inc., pp.155-156.Google Scholar

About the article

The author would like to thank Frederik Lundtofte and Lu Liu for helpful comments and suggestions

Published Online: 2013-04-20

Published in Print: 2013-03-01

Citation Information: Review of Economic Perspectives, Volume 13, Issue 1, Pages 3–29, ISSN (Online) 1804-1663, ISSN (Print) 1213-2446, DOI: https://doi.org/10.2478/v10135-012-0013-7.

Export Citation

This content is open access.

Citing Articles

Here you can find all Crossref-listed publications in which this article is cited. If you would like to receive automatic email messages as soon as this article is cited in other publications, simply activate the “Citation Alert” on the top of this page.

Rania Jammazi, Román Ferrer, Francisco Jareño, and Syed Jawad Hussain Shahzad
International Review of Economics & Finance, 2017, Volume 49, Page 453

Comments (0)

Please log in or register to comment.
Log in