Spillovers Between Business Confidence and Stock Returns in Greece, Italy, Portugal, and Spain

Abstract

This paper employs Hong's (2001) causality-in-mean and causality-in-variance tests to investigate the spillovers between business confidence and stock returns for the four economically distressed Southern European countries, namely Greece, Italy, Spain, and Portugal. The sample uses monthly data and covers the period from January 1988 to December 2010. Our causalityin-mean results indicate that there is feedback relationship between stock returns and business confidence in Portugal. The direction of causality-in-mean runs from business confidence to stock returns in Italy, but it is in the reverse direction in the case of Spain. Nevertheless, there is still evidence of a contemporaneous interaction between business confidence and stock returns in both Italy and Spain. On the other hand, causality-in-variance indicate the presence of volatility spillovers from business confidence to stock returns in Portugal, while a causal relationship is found in the current month in the case of Italy. Business confidence causes stock returns only in the mean in Greece. These results indicate that the stock market and business confidence relationship has its own idiosyncratic properties and that the stock market reactions to the current macroeconomic environment and expectations about the future developments might evolve differently in each country.

The impact of natural disaster shocks on business confidence level and Istanbul Stock Exchange: A wavelet coherence approach

“…Figure11billustrates that an increase in the BCI leads to an increase in BIST-100 during the period 2003-2018 at a 1-2-year business cycle. This finding conforms those byNikkinen et al (2006),Atukeren et al (2012),Çevik et al (2012),Liston and Huerta (2012),Sum (2014) andSum et al (2016).…”

The Effect of 2008 Crisis on the Volatility Spillovers among Six Major Markets

“…One part of the literature concentrates on the linkages among sectors in the same country and the other part concentrates on the linkages among different countries, something that we also do in this paper. Tsai (2014), Trenca and Dezsi (2013), Atukeren et al (2013), Grobys (2010), Baele (2005), and Choudhry (2004) are some of the examples which try to analyze the spillover effects among different countries' stock markets. Some other papers such as Hwang (2014), Sugimoto et al (2014), Meric et al (2012), Samarakoon (2011), Chakrabarti (2011), Gklezakou and Mylonakis (2010), and Majid and Kassim (2009) investigate the effect of the last global financial crisis on the financial linkages among countries.…”

“…Tsai (), Trenca and Dezsi (), Atukeren et al. (), Grobys (), Baele (), and Choudhry () are some of the examples which try to analyze the spillover effects among different countries' stock markets. Some other papers such as Hwang (), Sugimoto et al.…”

Do monetary policy credibility and disagreements in inflation and interest rate expectations affect business confidence? Evidence from an inflation targeting developing country

“…Besides CRED and the disagreements in inflation and interest rate expectations, the set of control variables X is formed by exchange rate ( EXCH ), interest rate ( IR ), electricity price ( EP ) and output gap ( GAP ) [5]. The choice of control variables follows studies addressing the determinants of business confidence (Campa and Goldberg, 2005; Atukeren et al ., 2013; de Mendonça and Finn, 2022). These variables have the potential to affect business confidence, and the explanations for their relationships with the BCI can be found in de Mendonça and Finn (2022).where, εt is the error term, εt∼N(0,σ2).…”