Co-exceedances in Eurozone sovereign stock markets - a multinomial logit analysis of contagion

This paper examines contagion between stock markets of six Eurozone countries (France, Germany, Greece, Ireland, Italy, and Spain ) during period from December 3, 2003 to January 27, 2012. A multinomial logistic model is applied to analyze contagion based on a measure of joint occurrences of extreme negative stock market returns (i.e. co-exceedances) while controlling for common and regional factors that affect all stock markets simultaneously. The results indicate that the DJI returns, the EUROSTOXX50 conditional volatility, and the EUR - USD exchange rate significantly impacted the probability of extreme negative returns in Eurozone stock markets. The probability of co-exceedance (or contagion) between the investigated Eurozone stock markets during the global financial crisis and the Eurozone debt crisis did not increase significantly