Tail connectedness in European equity markets: regime persistence and the role of geopolitical risk

Djebari, Fayçal, Mehidi, Kahina and Mazouz, Khelifa ORCID: https://orcid.org/0000-0001-6711-1715 2026. Tail connectedness in European equity markets: regime persistence and the role of geopolitical risk. International Journal of Financial Studies 14 (9) , 235. 10.3390/ijfs14090235

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Abstract

Financial networks are typically summarised by a single average-regime connectedness estimate that treats transmission as symmetric across calm and turbulent markets. Using a quantile vector autoregression on nine European equity indices from 2000 to 2026, we show that crash-regime connectedness is not an episodic crisis response but a persistent premium over the normal regime, holding steady across nearly six thousand rolling windows. We introduce Geopolitical Risk Realised Volatility, a within-month measure of geopolitical risk dispersion distinct from its level, and show that it predicts a delayed, statistically robust decoupling of tail connectedness, modest in magnitude and specific to the crash regime, that adds information beyond GPR Act’s level alone. A quantile-specific structural break test shows that the Brexit referendum permanently shifted the United Kingdom’s net shock-transmission position within the European equity network. These shocks affect connectedness only in the crash regime, a pattern an average-regime estimate does not capture.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Schools > Business (Including Economics)
Publisher:	MDPI
ISSN:	2227-7072
Date of First Compliant Deposit:	9 September 2026
Date of Acceptance:	2 September 2026
Last Modified:	09 Sep 2026 10:15
URI:	https://orca.cardiff.ac.uk/id/eprint/189492

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