Financial Contagion between United States and European Markets

Abstract This paper investigates the existence of financial contagion between the US stock market and 10 European stock markets. Using intraday data for a large set of 374 equities for the period January to June 2011 of three different sectors we investigate the impact of the consumer confidence index announcements in both the US market and related European markets. We apply Garman and Klass (1980) volatility estimator to calculate asset volatility which differs from the classical volatility estimator which cannot reflect fluctuations within a period. Our results indicate that spillover of asset prices volatility from the US to European markets does exist; the greatest impact in the volatility in the target markets is observed in the first minute after the increase in asset prices volatility in the US market and the level of markets interconnection is different among sectors. Keywords: Financial Contagion, Consumer Confidence Index, European Stock market