Stock Market Co-Movements in Europe

We analyze daily as well as intraday stock market indices for the stock markets in Budapest (BUX), Prague (PX 50), Warsaw (WIG 20), Frankfurt (DAX 30), Paris (CAC 40) and London (UKX). The sample begins on June 3, 2003 and runs till December 31, 2010. We first employ a VAR model to model their joint behaviour. The residuals from the VAR model are then used as a basis for the analysis of dynamic correlations between the six markets under research. To model the dynamics of the conditional variance of the innovation process we employ the Dynamic Conditional Correlation (DCC) model. Pattern on daily level shows that European markets become well integrated as dynamic correlation coefficients are quite high. On the intraday level we find strong co-movements between Western European markets but not among the Central European markets. We do not detect excessive changes in co-movement patterns due to the recent crisis period.