Interdependence between the Slovenian and European stock markets-a DCC-GARCH analysis

Abstract

This paper examines the comovement and spillover dynamics between the Slovenian and some European (the UK, German, French, Austrian, Hungarian and the Czech) stock market returns. A dynamic conditional correlation GARCH (DCC-GARCH) analysis is applied to returns series of representative national stock indices for the period from April 1997 to May 2010 to answer the following questions: i) Is correlation (comovement) between the Slovenian and European stock markets time-varying; ii) Are there return and volatility spillovers between European and Slovenian stock markets; iii) What effect did financial crises in the period from April 1997 to May 2010 have on the comovement between the investigated stock markets? Results of the DCC-GARCH analysis show that comovement between Slovenian and European stock markets is time-varying and that there were significant return spillovers between the stock markets. Financial crises in the observed period increased comovement between Slovenian and European stock markets.