How Do Stock Indices Respond to Market Shocks? Examining Stock Market Contagion in European Countries with Minimum Spanning Trees

Dóra Sallai; Mercédesz Mészáros; Gábor Dávid Kiss

doi:10.2478/erfin-2022-0003

Dóra Sallai University of Szeged, Hungary
Mercédesz Mészáros University of Szeged, Hungary
Gábor Dávid Kiss University of Szeged, Hungary

DOI: https://doi.org/10.2478/erfin-2022-0003

Keywords: COVID-19, Network, Minimum Spanning Tree Graph, CEE, Stock Market

Abstract

This paper analyses the structural changes of the European stock markets by using a minimum spanning tree graph. The aim was to point out similarities and differences of the previous recessions, namely the Subprime crisis around 2008, the European sovereign debt crisis of the 2010s and the recent COVID-19 period. Focusing on the structural changes of the graph, we were looking for the emergence of shock-propagating hub. During each of the three examined recession periods, we could see a constant change in the stock market network, where stock market indices are connected mainly through one central index during turbulent times, while the connections became more diverse in calm periods.

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