The Greek financial crisis, extreme co-movements and contagion effects in the EMU: A copula approach

Boubaker Adel, Jaghoubbi Salma

Abstract


This paper examines the extent of the current financial Greek crisis and the contagion effects it concludes toward the euro zone by conducting an empirical investigation of the dependence structure between seventeen European stock markets during the period 2007-2011. In particular, several copula functions are used to model the degree of cross-market linkages. The model is implemented with a GARCH model for the marginal distributions and the student-t copula for the joint distribution which allows capturing nonlinear relationships and offers significant advantages over econometric techniques in analyzing the co-movement of financial time-series. Our empirical results show that there is strong evidence of market dependence in the euro area. However, the dependence remains significant but weaker, for the major of stock markets, after the occurrence of the Greek crisis.

 


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DOI: http://dx.doi.org/10.5296/ijafr.v2i1.1952

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