Intraday Industry-Specific Spillover Effect in European Equity Markets

Abstract

This paper investigates the existence of financial contagion between the US and 10 European stock markets. Using intraday minute per minute data of a large set of 374 equities from three different industries over the period from January to June 2011 we investigate the impact of increased volatility in the US on the cross-country industry level spillover effect. Self-built industry indices are used which allow implementing the same index methodology across different markets. We first show that spillover of asset price volatility from the US to European markets does exist; the greatest spike in the volatility in the target markets is observed in the first minute and absorbed in the first five minutes after the volatility increase. Second, we can state that Euro denominated markets amplify the spillover effect of volatility from the US market. Third, we provide evidence on the industry heterogeneity of the spillover effects and claim that an analysis of financial contagion across industries is desirable instead of the use of global market indices.

Keywords: Financial Contagion, Consumer Confidence Index, European Stock markets, Spillover Effect

JEL Classification: G1, G15