What is Behind Extreme Negative Returns co-movement in the South Eastern European Stock Markets?

Abstract

This paper examines co-movement of extreme negative returns in the South Eastern European (SEE) stock markets during the period covering the recent financial crisis and sovereign debt crisis. The analysis is based on negative co-exceedances - joint occurrences of negative extreme returns in different countries stock markets. To provide a valuable insight on how persistence, asset class, volatility and liquidity effects are related with negative co-exceedances in SEE markets we utilize a multinomial logistic regression procedure. We find evidence in favor of the continuation hypothesis in SEE stock markets. However, the factors associated with the co-exceedances differ between the SEE EU member countries and SEE EU accession countries. The EU member countries are more dependent on the signals from major EU economies, while the accession countries are mainly influenced by the signals from the region.