The Role of the CEE Region’s Banking Sector in the Time of the Russo-Ukrainian War : Measuring Volatility Spillovers

Abstract

In this paper, I investigate the volatility spillovers of the European banking network in 21-22. Applying the Diebold-Yilmaz framework to the daily stock return, which identified volatilities for 14 European banks, I analyse the impact of the first 100 days of the Russo-Ukrainian War on the banking sector. The empirical results suggest that the volatility-connectedness of the system reaches its maximum at a time of war. Similar to the earlier empirical literature, I find that, in calm periods, large banks play a critical role in volatility risk transmission. However, I conclude that, during the first 100 days of the Russo-Ukrainian War, the key participants in the financial network were institutions from the CEE region. My results suggest that, considering the banking network’s macro and groupaggregated level volatility connectedness, an early-warning system to detect troubled financial institutions should be built.