Spillover effects between Greece and Cyprus: a DCC model on the interdependence of small economies

Although some studies recently address the association between COVID-19 sentiment and returns, volatility, or stock trading volume, no one conducts an analysis to measure the impact of investor rationality or irrationality on the influence on countries and sectors’ returns.
This work creates a text media sentiment and combines its influence with the outbreak cases on the stock market sector returns of the US, Europe, and their main countries most affected by the pandemic.
This allows us to perceive the ranking impact of rationality or irrationality on country and sector stock returns. This work applies a random-effects robust panel estimation, with an M-estimator. This paper concludes that US returns are more sensitive to sentiment, and thus more prone to irrational factors than confirmed cases compared to Europe and that country factors influence the returns differently. In Italy and Spain as the most punished countries in Europe apart from the UK, present sector indexes return more reactive to verified cases, or rationality, namely, tourism, real estate, and the automobile (this last one in Italy).
The importance of this work resides in providing a new in-depth analysis of irrational behavioral metrics among countries, which allows for comparison. Moreover, it allows observing which sectors’ and which countries’ asset returns are most sensitive to rational or irrational expressions of events, allowing for arbitraging, financial planning for investors, decision-makers, and academia on an in and out of pandemic context.

Acknowledgment
This work is funded by National Funds through the FCT – Foundation for Science and Technology, I.P., within the scope of the project Refª UIDB/05583/2020. Furthermore, we would like to thank the Research Centre in Digital Services (CISeD) and the Polytechnic Institute of Viseu for their support.

The dependence structure between the main energy markets (such as crude oil, natural gas, and coal) and the main stock index plays a crucial role in the economy of a given country. As the dependence structure between these series is dramatically complex and it appears to change over time, time-varying dependence structure given by a class of dynamic copulas is taken into account.
To this end, each pair of time series returns with a dynamic t-Student copula is modelled, which takes as input the time-varying correlation. The correlation evolves with the DCC(1,1) equation developed by Engle.
The model is tested through a simulation by employing empirical data issued from the Italian Stock Market and the main connected energy markets. The author considers empirical distributions for each marginal series returns in order to focus on the dependence structure. The model’s parameters are estimated by maximization of the log-likelihood. Also evidence is found that the proposed model fits correctly, for each pair of series, the left tail dependence coefficient and it is then compared with a static copula dependence structure which clearly underperforms the number of joint extreme values at a given confidence level.

This study aims to examine the spillover and contagion effects of global financial markets on the Indonesian Sharia Stock Index (ISSI) post-COVID-19. The study uses the Vector Error Correction Model method to explore the short-term and long-term relationships between ISSI and global financial markets. The data used in this study are time series data, namely the ISSI and several other countries that have a significant influence on the global economy, which were observed from May to July 2022. The results of the study show that the USD has a positive influence on ISSI in the short and long term. At the same time, the JPY and HKD have a negative influence on ISSI. The GBP and SGD do not have a significant influence on ISSI developments. The economic, business and financial sectors began to adjust after the COVID-19 pandemic ended, including the Indonesian Sharia Stock Index. Contagion occurs from one country’s financial system to another, which is influenced by aspects of volatility, exchange rates, the global crisis, the stock market, and stock indices. It is considered that this study can help the government to adjust better conditions of Islamic stocks in Indonesia.

Acknowledgment
The authors would like to thank the Research and Innovation Institute (LRI), Universitas Muhammadiyah Surakarta, for the enormous financial support in writing this study through the HIT funding scheme with number 02/A.6-II/FAI/1/2022.