Dynamic spillover and connectedness in higher moments of European stock sector markets

Abstract

This study examines the spillovers in high-order moments (realized volatility, jumps, skewness, and kurtosis) among European stock sectoral indices. Using 5-minute data from January 2, 2013 to January 7, 2022, we show that the four sources of systemic risk, namely, volatility, jumps, skewness, and kurtosis, are transmitted from four main sectors before and during COVID-19 pandemic. Further, volatilities and jumps (bad volatility) associated with activities of the European energy and chemicals sectors that spillover shocks to other European markets are the greatest sources of systemic risk. Whereas, skewness (asymmetry) and kurtosis (fat-tail) associated with activities of the European industrial and insurance sectors that spillover shocks to other European markets are the greatest sources of systemic risk.