Stock market contagion in Central and Eastern Europe: Unexpected volatility and extreme co-exceedance

We examine whether there is contagion from the U.S. stock market to six Central and Eastern European stock markets. We use a novel measure of contagion that examines whether volatility shocks in the U.S. stock market coupled with negative returns are followed by higher co-exceedance between U.S. and emerging stock markets. Using our approach and controlling for a set of marketrelated variables, we show that during the period from 1998 to 2014, financial contagion occurred, i.e., unexpected negative events in the U.S. market are followed by higher co-exceedance between U.S. and Central and Eastern European stock markets. Even though contagion is stronger during the financial crisis, it also occurs in tranquil times.