Rui Dias – School of Business and Administration, Polytechnic Institute of Setúbal, Portugal; CEFAGE-UE, IIFA, University of Évora, Portugal
Catarina Revez – School of Business and Administration, Polytechnic Institute of Setúbal, Portugal
Nicole Horta – School of Business and Administration, Polytechnic Institute of Setúbal, Portugal
Paulo Alexandre – School of Business and Administration, Polytechnic Institute of Setúbal, Portugal
Paula Heliodoro – School of Business and Administration, Polytechnic Institute of Setúbal, Portugal
Keywords: Contagion effects;
Russian-Ukrainian invasion;
Portfolio diversification
DOI: https://doi.org/10.31410/ERAZ.2022.57
Abstract: Russia invaded Ukraine on February 24th, 2022, marking a steep escalation of the Russo-Ukrainian War, which began in 2014 after the Ukrainian Dignity Revolution. The invasion caused Europe’s largest refugee crisis since World War II, with more than 5.5 million Ukrainians leaving the country and a quarter of the population displaced. At the outbreak of war in 2014, Russia annexed Crimea and Russian-backed separatists who participated in the south-eastern Donbas region of Ukraine, starting a regional war there. Considering these events, it is relevant for policymakers and regulators to understand how contagious crises are to take appropriate measures to prevent or contain the side effects. To verify the levels of contagion or interdependencies we use Pindyck and Rotemberg’s t-statistic, as well as Forbes and Rigobon’s t-test, which suggests that we are facing extreme volatility in the capital markets analysed, and financial contagion is very significant. In conclusion, the capital markets analysed mostly show that correlations have increased in this period of uncertainty in the global economy (Russian invasion in Ukraine), evidencing that investors will find it difficult to diversify risk in these markets. The authors believe that the results achieved represent interest for investors seeking opportunities in these stock markets, and for policymakers to undertake institutional reforms to increase stock market efficiency and promote sustainable growth in financial markets. These findings also open room for market regulators to take steps to ensure better information in these regional markets
8th International Scientific ERAZ Conference – ERAZ 2022 – Conference Proceedings: KNOWLEDGE BASED SUSTAINABLE DEVELOPMENT, Online-Virtual (Prague, Czech Republic), May 26, 2022
ERAZ Conference Proceedings published by: Association of Economists and Managers of the Balkans – Belgrade, Serbia
ERAZ conference partners: Faculty of Economics and Business, Mediterranean University, Montenegro; University of National and World Economy – Sofia, Bulgaria; Faculty of Commercial and Business Studies – Celje, Slovenia; AMBIS University, Prague – Czech Republic; Faculty of Applied Management, Economics and Finance – Belgrade, Serbia
ERAZ Conference 2022 Conference Proceedings: ISBN 978-86-80194-60-8, ISSN 2683-5568, DOI: https://doi.org/10.31410/ERAZ.2022
Creative Commons Non Commercial CC BY-NC: This article is distributed under the terms of the Creative Commons Attribution-Non-Commercial 4.0 License (https://creativecommons.org/licenses/by-nc/4.0/) which permits non-commercial use, reproduction and distribution of the work without further permission.
Sugested citation
Dias, R., Revez, C., Horta, N., Alexandre, P., & Heliodoro, P. (2022). Financial Contagion in Central and Eastern European Capital Markets: The Case of Russia’s Invasion of Ukraine. In V. Bevanda (Ed.), ERAZ Conference – Knowlegde Based Sustainable Development: Vol 8. Conference Proceedings (pp. 57-69). Association of Economists and Managers of the Balkans. https://doi.org/10.31410/ERAZ.2022.57
References
Alexakis, C., & Pappas, V. (2018). Sectoral dynamics of financial contagion in Europe – The cases of the recent crises episodes. Economic Modelling. https://doi.org/10.1016/j.econmod.2018.03.018
Babecký, J., Komarek, L., & Komárková, Z. (2017). Financial integration at times of crisis and recovery. International Finance Review. https://doi.org/10.1108/S1569-376720170000018010
Breitung, J. (2000). The local power of some unit root tests for panel data. Advances in Econometrics. https://doi.org/10.1016/S0731-9053(00)15006-6
De Morais, I. A. C., De Macêdo, G. R., Godoy, M. R., & Piveta, L. B. (2019). Measuring the Contagion Effect in Emerging Markets. In Handbook of Global Financial Markets: Transformations, Dependence, and Risk Spillovers. https://doi.org/10.1142/9789813236653_0006
Dias, R. T., & Carvalho, L. (2021a). Foreign Exchange Market Shocks in the Context of the Global Pandemic (COVID-19). 359–373. https://doi.org/10.4018/978-1-7998-6643-5.ch020
Dias, R. T., & Carvalho, L. (2021b). The Relationship Between Gold and Stock Markets During the COVID-19 Pandemic. May, 462–475. https://doi.org/10.4018/978-1-7998-6643-5.ch026
Dias, R. T., Pardal, P., Santos, H., & Vasco, C. (2021). COVID-19 Pandemic and Its Influence on Safe Havens. June, 289–303. https://doi.org/10.4018/978-1-7998-6926-9.ch016
Dias, R., Teixeira, N., Machova, V., Pardal, P., Horak, J., & Vochozka, M. (2020). Random walks and market efficiency tests: Evidence on US, Chinese and European capital markets within the context of the global Covid-19 pandemic. Oeconomia Copernicana, 11(4). https://doi.org/10.24136/OC.2020.024
Dias, R., Alexandre, P., Vasco, C., Heliodoro, P., & Santos, H. (2021). Random Walks and Market Efficiency: Gold, Platinum, Silver Vs Asia Equity Markets. 5th EMAN Conference Proceedings (Part of EMAN Conference Collection), October, 55–70. https://doi.org/10.31410/eman.2021.55
Dias, R., & Carvalho, L. C. (2020). Hedges and safe havens: An examination of stocks, gold and silver in Latin America’s stock market. Revista de Administração Da UFSM, 13(5), 1114– 1132. https://doi.org/10.5902/1983465961307
Dias, R., da Silva, J. V., & Dionísio, A. (2019). Financial markets of the LAC region: Does the crisis influence the financial integration? International Review of Financial Analysis, 63(January), 160–173. https://doi.org/10.1016/j.irfa.2019.02.008
Dias, R., Heliodoro, P., & Alexandre, P. (2020). Efficiency of Asean-5 Markets: An Detrended Fluctuation Analysis. Mednarodno Inovativno Poslovanje = Journal of Innovative Business and Management, 12(2), 13–19. https://doi.org/10.32015/jibm.2020.12.2.13-19
Dias, R., Heliodoro, P., Alexandre, P., Santos, H., & Farinha, A. (2021). Long memory in stock returns: Evidence from the Eastern European markets. SHS Web of Conferences, 91. https://doi.org/10.1051/shsconf/20219101029
Dias, R., Heliodoro, P., Alexandre, P., Santos, H., & Vasco, C. (2021). Market Efficiency in Its Weak Form: the Pre-Covid and Covid Indonesia Analysis. 5th EMAN Conference Proceedings (Part of EMAN Conference Collection), October, 1–11. https://doi.org/10.31410/eman.2021.1
Dias, R., Heliodoro, P., Alexandre, P., & Vasco, C. (2020). The shocks between Oil market to the BRIC stock markets: A generalized VAR approach. 25–31.
Dias, R., Pardal, P., Teixeira, N., & Machová, V. (2020). Financial Market Integration of ASEAN-5 with China. Littera Scripta, 13(1). https://doi.org/10.36708/littera_scripta2020/1/4
Dias, R., & Pereira, J. M. (2021). The Impact of the COVID-19 Pandemic on Stock Markets. International Journal of Entrepreneurship and Governance in Cognitive Cities, 1(2), 57–70. https://doi.org/10.4018/ijegcc.2020070105
Dias, R., Pereira, J. M., & Carvalho, L. C. (2022). Are African Stock Markets Efficient? A Comparative Analysis Between Six African Markets, the UK, Japan and the USA in the Period of the Pandemic. Naše Gospodarstvo/Our Economy, 68(1), 35–51. https://doi.org/10.2478/ngoe-2022-0004
Dias, R., & Santos, H. (2020). Stock Market Efficiency in Africa: Evidence From Random Walk Hypothesis. 6th LIMEN Conference Proceedings (Part of LIMEN Conference Collection), 6, 25–37. https://doi.org/10.31410/limen.2020.25
Dias, R., Santos, H., Heliodoro, P., Vasco, C., & Alexandre, P. (2021). WTI oil shocks in Eastern European Stock Markets: A VAR Approach. 5th EMAN Conference Proceedings (Part of EMAN Conference Collection), October, 71–84. https://doi.org/10.31410/eman.2021.71
Fang, M., Yang, S., & Lei, Y. (2021). Residual contagion in emerging markets: ‘herd’ and ‘alarm’ effects in informatization. Electronic Commerce Research, 21(3). https://doi.org/10.1007/s10660-019-09350-x
Forbes, K. J., & Rigobon, R. (2002). No contagion, only interdependence: Measuring stock market comovements. Journal of Finance, 57(5), 2223–2261. https://doi.org/10.1111/0022-1082.00494
Gunay, S. (2020). A New Form of Financial Contagion: COVID-19 and Stock Market Responses. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3584243
Hadri, K. (2000). Testing for stationarity in heterogeneous panel data. The Econometrics Journal. https://doi.org/10.1111/1368-423x.00043
Heliodoro, P., Dias, R., & Alexandre, P. (2020). Financial Contagion Between the Us and Emerging Markets: Covid-19 Pandemic Case. 4th EMAN Selected Papers (Part of EMAN Conference Collection), 1–9. https://doi.org/10.31410/eman.s.p.2020.1
Jarque, C. M., & Bera, A. K. (1980). Efficient tests for normality, homoscedasticity and serial independence of regression residuals. Economics Letters, 6(3), 255–259. https://doi.org/10.1016/0165-1765(80)90024-5
Jin, X., & An, X. (2016). Global financial crisis and emerging stock market contagion: A volatility impulse response function approach. Research in International Business and Finance. https://doi.org/10.1016/j.ribaf.2015.09.019
Levin, A., Lin, C. F., & Chu, C. S. J. (2002). Unit root tests in panel data: Asymptotic and finite-sample properties. Journal of Econometrics. https://doi.org/10.1016/S0304-4076(01)00098-7
Malik, K., Sharma, S., & Kaur, M. (2021). Measuring contagion during COVID-19 through volatility spillovers of BRIC countries using diagonal BEKK approach. Journal of Economic Studies. https://doi.org/10.1108/JES-05-2020-0246
Pardal, P., Dias, R., Šuleř, P., Teixeira, N., & Krulický, T. (2020). Integration in Central European capital markets in the context of the global COVID-19 pandemic. 15(4). https://doi.org/10.24136/eq.2020.027
Pardal, P., Dias, R. T., Santos, H., & Vasco, C. (2021). Central European Banking Sector Integration and Shocks During the Global Pandemic (COVID-19). June, 272–288. https://doi.org/10.4018/978-1-7998-6926-9.ch015
Pindyck, R. S., & Rotemberg, J. J. (1990). The Excess Co-Movement of Commodity Prices. The Economic Journal, 100(403). https://doi.org/10.2307/2233966
Saijai, W., Maneejuk, P., & Sriboonchitta, S. (2022). Contagion Effects Among Stock Markets, Treasury Bill, Petroleum, Gold, and Cryptocurrency During the COVID-19 Pandemic: A Dynamic Conditional Correlation Approach. Studies in Computational Intelligence, 983. https://doi.org/10.1007/978-3-030-77094-5_40
Silva, R., Dias, R., Heliodoro, P., & Alexandre, P. (2020). Risk Diversification in Asean-5 Financial Markets: an Empirical Analysis in the Context of the Global Pandemic (Covid-19). 6th LIMEN Selected Papers (Part of LIMEN Conference Collection), 6, 15–26. https://doi.org/10.31410/limen.s.p.2020.15
Tsai, I. C. (2017). The source of global stock market risk: A viewpoint of economic policy uncertainty. Economic Modelling. https://doi.org/10.1016/j.econmod.2016.09.002
Tsay, R. S. (2005). Analysis of Financial Time Series. In Technometrics (Vol. 48, Issue 2). https://doi.org/10.1198/tech.2006.s405
Vasco, C., Pardal, P., & Dias, R. T. (2021). Do the Stock Market Indices Follow a Random Walk? May, 389–410. https://doi.org/10.4018/978-1-7998-6643-5.ch022
Wong, D. K. T., & Li, K. W. (2010). Comparing the performance of relative stock return differential and real exchange rate in two financial crises. Applied Financial Economics. https://doi.org/10.1080/09603100903266468
Zebende, G. F., Santos Dias, R. M. T., & de Aguiar, L. C. (2022). Stock market efficiency: An intraday case of study about the G-20 group. Heliyon, 8(1), e08808. https://doi.org/10.1016/j.heliyon.2022.e08808