Moving Together or Apart? Stock Market Comovements across Eurozone, EU, and Non-EU Economies before, during and after the Financial Crisis

Recent economic events across the PIIGS countries (Portugal, Ireland, Italy, Greece and Spain) may have resulted in correlated stock market returns across those countries and caused contagion to more developed European markets such as Germany or the UK, particularly during the Great Recession. Using several complementary techniques, including linear and nonlinear correlations, copulas, quantile dependence, and lower-tail dependence on data from 1999 to 2015, we find equity market comovements among the PIIGS stock markets to be weaker than between each of the PIIGS and the more advanced European economies of France, Germany, and the UK. We also find that stock markets of the advanced countries co-move more closely with each other than with any of the peripheral economies. Surprisingly, the nature of this comovement structure did not change during the global financial crisis, suggesting that this relative comovement structure is very stable even in the face of dramatic economic change. Further, we find that the level of comovements remained virtually the same as the Eurozone was transitioning from the financial crisis to the post-crisis recovery. Comovements with non-EU countries are not as strong, even with Switzerland, which suggests that the UK's impending withdrawal from the UK will result in weaker comovements of the British stock market with other European markets. Our results are largely immune to joint (marginal) distributional assumptions and do not require joint normality.