{"id":12414,"date":"2026-11-09T04:54:06","date_gmt":"2026-11-09T04:54:06","guid":{"rendered":"https:\/\/revista.isfin.ro\/?p=12414"},"modified":"2026-11-09T04:59:14","modified_gmt":"2026-11-09T04:59:14","slug":"volatility-regime-shifts-and-stress-transmission-in-european-capital-markets-a-dynamic-connectedness-approach","status":"publish","type":"post","link":"https:\/\/revista.isfin.ro\/en\/2026\/11\/09\/volatility-regime-shifts-and-stress-transmission-in-european-capital-markets-a-dynamic-connectedness-approach\/","title":{"rendered":"VOLATILITY REGIME SHIFTS AND STRESS TRANSMISSION IN EUROPEAN CAPITAL MARKETS: A DYNAMIC CONNECTEDNESS APPROACH"},"content":{"rendered":"
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Authors: Lucian-Liviu Albu, Iulia Lupu, Radu Lupu<\/p>

Vol. 11 \u2022 No. 21 \u2022 November 2026<\/p>\t\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t

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Abstract<\/strong><\/p>\t\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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This paper investigates whether volatility regime shifts in European equity markets are associated with changes in cross-market stress transmission. Using daily returns for seven major European equity indices (1998-2026), plus two extension panels adding Sweden, Denmark and Poland, we estimate EGARCH (1,1)-Student-t volatility models, classify markets into low-, medium- and high-volatility regimes via a hidden Markov model, and measure dynamic connectedness with a rolling-window VAR-based variance-decomposition approach. High-volatility regimes cluster strongly across markets (the same-day coincidence rate of regime-entry dates is 24-33% across panels, against a 1% placebo benchmark), and total connectedness rises significantly before, during and for several weeks after system-wide regime shifts, even after controlling for connectedness persistence. Net-transmission concentration increases during high-volatility periods even as gross transmission becomes more diffuse; France, Germany and the Netherlands are persistent net transmitters of stress, while Switzerland, the United Kingdom and Spain are persistent net receivers. A European Market Stress Transmission Index (EMSTI), combining regime probability, connectedness, and network concentration, peaks at well-documented stress episodes: the 2015 Greek\/China selloff and the 2022 Russia-Ukraine energy shock. The findings hold up in nine of ten robustness checks. The one substantive qualification: once global risk factors (VIX, US equity returns, EUR\/USD and US interest rates) are controlled for, part of the apparent pre- and post-shift rise in connectedness reflects global risk sentiment rather than a purely European phenomenon; only the contemporaneous shift-window effect is unambiguously European. The results support regime-sensitive connectedness indicators as a complement to, not a replacement for, existing financial-stability monitoring tools.<\/p>

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Keywords:<\/strong> volatility regimes; dynamic connectedness; stress transmission; EGARCH; hidden Markov model; European equity markets; financial stability.<\/p>\t\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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JEL Classification:<\/strong> C32, C58, G01, G15.<\/p>\t\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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DOI:\u00a0<\/strong><\/p>\t\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Authors: Lucian-Liviu Albu, Iulia Lupu, Radu Lupu Vol. 11 \u2022 No. 21 \u2022 November 2026 View abstract PDF View article PDF Abstract This paper investigates whether volatility regime shifts in European equity markets are associated with changes in cross-market stress transmission. Using daily returns for seven major European equity indices (1998-2026), plus two extension panels …<\/p>\n

VOLATILITY REGIME SHIFTS AND STRESS TRANSMISSION IN EUROPEAN CAPITAL MARKETS: A DYNAMIC CONNECTEDNESS APPROACH<\/span> Read More »<\/a><\/p>","protected":false},"author":6,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[190],"tags":[],"yoast_head":"VOLATILITY REGIME SHIFTS AND STRESS TRANSMISSION IN EUROPEAN CAPITAL MARKETS: A DYNAMIC CONNECTEDNESS APPROACH - Revista de Studii Financiare<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/revista.isfin.ro\/en\/2026\/11\/09\/volatility-regime-shifts-and-stress-transmission-in-european-capital-markets-a-dynamic-connectedness-approach\/\" \/>\n<meta property=\"og:locale\" content=\"en_GB\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"VOLATILITY REGIME SHIFTS AND STRESS TRANSMISSION IN EUROPEAN CAPITAL MARKETS: A DYNAMIC CONNECTEDNESS APPROACH - Revista de Studii Financiare\" \/>\n<meta property=\"og:description\" content=\"Authors: Lucian-Liviu Albu, Iulia Lupu, Radu Lupu Vol. 11 \u2022 No. 21 \u2022 November 2026 View abstract PDF View article PDF Abstract This paper investigates whether volatility regime shifts in European equity markets are associated with changes in cross-market stress transmission. 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