How the Contagion is Transmitted to the Macedonian Stock Market? an Analysis of Co-Exceedances

Abstract

Abstract The aim of the paper is to analyze the transmission of shocks from selected developed and Southeastern European stock markets to the stock market of North Macedonia. Using the Bae, Karolyi, and Stulz (2003) co-exceedance methodology, we find that the probability of contagion from the stock markets of United States, Serbia and Bosnia and Herzegovina to the Macedonian stock market increased during the Global Financial Crisis. Regarding the asset classes, we show that contagion is positively associated with the volatility of Eurostoxx50 index, while negatively with the return of the euro dollar exchange rate and the yield of the 10-year US Treasury Note. The results have important implications for portfolio diversification and the asset allocation decisions of investors.