Analysis of spillover effects between banks in Central-Eastern-Europe and Western-Europe
DOI:
https://doi.org/10.15170/SZIGMA.56.1297.Keywords:
volatility spillover, volatility connectedness, CEE, Western Europe, COVID-19, Russian-Ukrainian warAbstract
One of the main characteristics of the economic and financial system of the Central and Eastern European (CEE) region is its dependence on Western Europe (WE).
Therefore, we considered it important to examine the risk spillover effect between CEE and WE banks, which we conducted for 30 banking groups, for the period between 2014 and 2023, divided into three periods: before the COVID-19 pandemic, during COVID-19, and under the Russian-Ukrainian war. We apply the Diebold-Yilmaz interconnectedness index model to the volatilities computed from daily stock prices and identify the key participants in the transmission and reception of shocks.
Both the relevant literature and our results confirm that the two regions are rather closely interconnected. Banks in the CEE region tend to play the role of shock receivers. At the same time, we show that during the Russian-Ukrainian war period, the CEE banks partially took over the shock transmission role of the WE banks.
