European stock market comovement dynamics during some major financial market turmoils in the period 1997 to 2010 – a comparative DCC-GARCH and wavelet correlation analysis

Abstract

This article examines the comovement dynamics between the developed European stock markets of the United Kingdom, Germany, France and Austria. After applying a Dynamic Conditional Correlation-Generalized Autoregressive Conditional Heteroskedastic (DCC-GARCH) and wavelet multiscale analysis on a daily return series for the period 1997 to 2010, we found that (1) comovements between stock market returns are time varying and scale dependent; (2) financial crisis in the observed period did not uniformly increase comovement between stock market returns across all scales; (3) the global financial crisis of 2007–2008 only slightly and temporarily increased the already high level of comovement between the observed stock markets.

Keywords:

• DCC-GARCH
• wavelet analysis
• stock markets
• European stock markets
• comovements

JEL Classification:

• G15
• G11
• F36

Notes