Crisis transmission channel for 17 East-European countries during the Global Financial Crisis

ABSTRACT

This paper investigates if the transmission channel of the Global Financial Crisis to 17 Eastern European markets can be directly connected with the US market or one of the three largest European markets. By employing a dummy regression model with a GJR-GARCH and EGARCH frameworks, the results show that Euronext is the main transmission channel for most analyzed markets. Latvia, Russia and Serbia were affected by the London Stock Exchange, while Slovakia showed no contagion. These results show that the crisis’s effects and transmission were not identical worldwide. This suggests that measures created to mitigate such crises should be tailored to each market.

KEYWORDS:

• Financial contagion
• transmission channel
• emerging stock markets
• frontier markets
• developed markets

JEL CLASSIFICATION:

• G01 Financial Crises
• G15 International Financial Markets

Acknowledgments

The author wishes to thank for the very useful comments received from prof. Victor Dragotă and the discussant and participants of the Joint Conference of EWGCFM and FI BA 2021. The remaining errors are mine.

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1. Poland was awarded the status of developed market in 2017 by FTSE, but during the crisis, it was still classified as emerging.

2. https://www.world-exchanges.org/our-work/statistics

3. The coefficients of the ARMA process are not reported. They are available upon request from the author.

4. The results obtained by using the EGARCH framework is presented in Appendix B, Table B1.

5. The results obtained by using the EGARCH framework is presented in Appendix B, Table B2.

6. The results obtained by using the GJR-GARCH framework is presented in Appendix B, Table B3.

7. The results obtained by using the GJR-GARCH framework is presented in Appendix B, Table B4.

Additional information

Notes on contributors

Elena Valentina Ţilică

Elena Valentina Ţilică is a lecturer from the Department of Finance of the Bucharest University of Economic Studies, with expertise in emerging financial markets and corporate finance.