The PIIGS Stock Markets Before and After the 2008 Financial Crisis: A Dynamic Cointegration and Causality Analysis

International Journal of Banking, Accounting and Finance, 4(3), 2012, pp. 232-249

Posted: 23 Aug 2012 Last revised: 15 Jun 2013

See all articles by Andreas Chouliaras

Andreas Chouliaras

Piraeus Bank

Apostolos G. Christopoulos

National and Kapodistrian University of Athens - Faculty of Economics

Dimitris Kenourgios

National and Kapodistrian University of Athens - Department of Economics

Petros Kalantonis

Technological Educational Institute (TEI) of Piraeus

Date Written: August 22, 2012

Abstract

This paper investigates whether cointegration and causality relationships exist among the stock markets of the PIIGS countries (Portugal, Italy, Ireland, Greece and Spain) during the period 2005-2011. To accomplish our objective, we divide the sample period into two sub-periods (1 February 2005-30 June 2008 and 1 July 2008-30 June 2011). Considering that the financial crisis, which initiated in the USA in 2007, expanded to the EU in mid-2008, we call the first period “pre-crisis period” and the second “crisis period”. We apply a battery of tests such as Johansen cointegration, Granger causality, Gregory and Hansen residuals cointegration with regime shifts, fully modified ordinary least squares, as well as a multivariate GARCH model. Conventional cointegration and vector error correction analysis show long and short run dynamics among PIIGS markets, especially during the crisis period. Further analysis into a regime switching and GARCH framework confirms the existence of cointegrating relationships among these stock markets while there are volatility spillovers between Greece and the rest of the countries. The findings have important implications for portfolio diversification benefits and the systemic nature of the crisis within the PIIGS countries.

Keywords: PIIGS stock markets, cointegration, Granger causality, regime switching, FM-OLS, GARCH

JEL Classification: C22, F36, G10, G11

Suggested Citation

Chouliaras, Andreas and Christopoulos, Apostolos G. and Kenourgios, Dimitris and Kalantonis, Petros, The PIIGS Stock Markets Before and After the 2008 Financial Crisis: A Dynamic Cointegration and Causality Analysis (August 22, 2012). International Journal of Banking, Accounting and Finance, 4(3), 2012, pp. 232-249 . Available at SSRN: https://ssrn.com/abstract=2133959

Andreas Chouliaras

Piraeus Bank ( email )

Apostolos G. Christopoulos

National and Kapodistrian University of Athens - Faculty of Economics ( email )

5 Stadiou Str
Athens, 15262
Greece

Dimitris Kenourgios (Contact Author)

National and Kapodistrian University of Athens - Department of Economics ( email )

1, Sofokleous Str
Office 521
Athens, 10559
Greece
+30 210 3689449 (Phone)

Petros Kalantonis

Technological Educational Institute (TEI) of Piraeus ( email )

250 Thivon & P. Ralli str
Egaleo
Greece

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