Equity interconnections in major European markets

Abstract

This paper investigates equity interconnection by analyzing dynamic links and volatility spillover effects between selected stocks of high liquidity from the major regulated European equity markets. A bivariate GARCH-BEKK model is used to study this interaction. By applying the volatility transmission methodology to company level rather than stock indices, the paper deepens our understanding of integration dynamics. The results provide evidence of a high level of dependence between these stocks and, given their high contribution to daily transactions in each market, they also imply a high level of dependence between these markets. This level of interconnection affects both market participants and competent market authorities. However, according to this evidence, there remains room for stronger stock interconnection and market integration within the EU.