Comovements of Financial Markets in the EU countries


  • Kristina Levisauskaite Vytautas Magnus University
  • Vilija Alekneviciene Aleksandras Stulginskis University
  • Egle Alekneviciute Aleksandras Stulginskis University



financial markets, government bond indices, stock indices, comovements, financial crisis, European Union


This article examines comovements between stock and government bond markets in the EU countries. Previous authors mostly indicated significant highly volatile comovements between the markets. In addition, it was proven in several markets that in times of financial crisis the comovements between financial markets are becoming stronger and negative correlations appear indicating flight-to-quality from stocks to government bonds. Despite of that, there exists a tendency to analyze only financial markets of Eurozone countries leaving the rest of the EU members behind. The aim of this research was to fill this gap by providing insights of comovements between stocks and government bond markets of al thel EU countries together with recommendations for portfolio diversification.

The first stage of the research was implemented by using Pearson’s correlation coefficient. Logarithmic returns on 52 market indices were used for calculations of correlation coefficients in the period of 1993–2012. The second stage of the research included the estimation of correlations in the period of 2008–2013, commonly referred to as financial crisis. In addition, statistical significance of coefficients was evaluated by testing Fisher’s null hypothesis.

The results of the research show that majority of correlation coefficients between stock and government bond indices were rather small and not significant during the full sample period with the exception in financial markets of Greece, Hungary, Lithuania and Romania (weak-medium statistically significant correlations). The results indicate financial markets in the countries mentioned being more related than in the rest of the EU countries, not being suitable for diversification between asset classes. No significant negative correlation between market indices in 1993–2013 was recorded implying that in times of stock market fall government bond markets would not be the safe haven for investors. Analysis of comovements between stock and government bond markets of the EU countries in the period from 2008 resulted in increase of correlation coefficients in 19 of 25 EU countries analyzed indicating strengthened comovements in times of financial stress. Despite of that, most of these correlations were positive. This is not beneficial for investors as diversification effect might disappear when it’s most needed. As exceptions should be mentioned Scandinavian countries where significant negative correlation coefficients obtained between stock and government bond indices indicate an existence of flight-to-quality. This could not be confirmed for the rest of the EU countries’ markets.

The results of the research partly comply with the results of previous studies in the topic, mostly confirming the tendencies for biggest EU financial markets. The research can be further implemented towards different directions: inclusion of the US as the major financial market, concentration on the countries with strongest comovements and provision of detailed estimation of them; inclusion of corporate bond indices; choice of other method for estimation of comovements between financial markets of the EU countries. Finally, the analysis needs more focus on the investigation of the reasons for differences in the relationship between financial markets.


Additional Files