The impact of the financial crisis on the long-range memory of European corporate bond and stock markets

TL;DR

This study examines how the 2008 financial crisis affected the long-range dependence and informational efficiency of European stock and bond markets, revealing asymmetric impacts and time-varying behaviors.

Contribution

It provides a comparative analysis of long memory in European markets before and after the crisis using DFA and R/S methods, highlighting market-specific effects.

Findings

Stock indices show smoother long memory than bond indices.

The 2008 crisis had a significant impact on bond markets but not on stock markets.

Informational efficiency varies over time in both markets.

Abstract

This paper investigates the presence of long memory in corporate bond and stock indices of six European Union countries from July 1998 to February 2015. We compute the Hurst exponent by means of the DFA method and using a sliding window in order to measure long range dependence. We detect that Hurst exponents behave differently in the stock and bond markets, being smoother in the stock indices than in the bond indices. We verify that the level of informational efficiency is time-varying. Moreover we find an asymmetric impact of the 2008 financial crisis in the fixed income and the stock markets, affecting the former but not the latter. Similar results are obtained using the R/S method.