The European Financial Market Stress Index

Year 2014, Volume: 4 Issue: 1, 217 - 230, 01.03.2014

Shaen Corbet

https://izlik.org/JA77XN52MF

Abstract

This research constructs and develops a financial stress index based on European financial markets. The integration of numerous sovereign states has created difficulty identifying stress in any one single financial component, but incorporating twenty-three headline European stress indicators across equities, bonds and currencies, in terms of both spreads and levels offer substantial explanatory benefits. The incorporation of a logistical framework specifically analysing the levels, volatility and co-movement of the included standardised series enables the creation of an index that adequately represents financial market stress in European. Using periods of pre-defined crisis in a logistic regression framework also aids the development of the index. The results provide evidence that the European-specific sovereign crises from 2010 to present, with particular emphasis on the mid-2011 period, have significantly over-shadowed any event that the financially-integrated Europe has previously experienced.

Keywords

European financial crisis , financial market stress indicator , liquidity , stock markets.