The reaction of the banking sector to the recent geopolitical crises:

Essays in the G7 and the BRICS countries

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Fatma HAJJI

Institute of Higher Commercial Studies of Cartage

Hadji.fatma@gmail.com

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Hassan OBEID

Head of Economics Department,

Paris School of Business
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h.obeid@psbedu.paris
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Mohamed FAKHFEKH

Higher Institute of Business Administration of Sfax

fakhfekh_moh@yahoo.fr
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Ahmed JERIBI
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Faculty of Economics and Management of Mahdia

ahmedjeribi07@yahoo.fr
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This preprint research paper has not been peer reviewed. Electronic copy available at: https://ssrn.com/abstract=4613716
 The reaction of the banking sector to the recent geopolitical crises:
Essays in the G7 and the BRICS countries

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Abstract:

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This article aims to examine the reaction of the banking sector in the G7 and the BRICS to the
major disruptive events that marked the financial markets recently (the COVID-19 pandemic,
the ongoing Ukrainian war, and the recent bank run of SVB). We built a methodological
framework using the ICSS algorithm and the AR (1) FIEGARCH (1,d,1) model, to detect the

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structural breaks and assess the volatility persistence during the turmoil periods. Our findings

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suggest that the banking sector was fairly resilient during the exposure to geopolitical risks.
These findings can bring insights to portfolio managers and international investors about the
benefits of holding stocks in the banking sector as safe assets.
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Keywords: banking sector, Covid-19, Ukrainian war, SVB failure, Volatility persistence,
structural breaks
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JEL Classification: C58, F65, G01, G10, G15,G21.

1. Introduction
The past few years were yet again a painful reminder of the fragility of the global financial
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system (“Global Financial Stability Report, April 2023,”). First, the COVID-19 pandemic has
led to a severe decline in economic activity. This major issue had catastrophic consequences on
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trade and investment flows and led to a rise in defaulted firms. Subsequently, while the world
was still recovering from the dramatic aftermath of the pandemic, the Russian-Ukrainian war
was triggered. The ongoing war was a turning point for the economic landscape (Boubaker et
al., 2023). Notably, the war heightened the geopolitical tension including sanctions from both
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sides of the Atlantic, political conflicts, and regulatory changes. These waves of disruption have
significantly exposed the financial system to high uncertainty. More recently, the abrupt failure
of SVB Bank followed by Signature Bank was a devastating shock to the global financial
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market. The SVB bank run was the second-largest US bank failure in history after Washington
Mutual Bank‘s collapse in 2008 (The Lost Bank, 2013).
The global banking system plays a pivotal role in absorbing shocks in times of turmoil by
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providing credit to the corporate sector and households (Demirgüç-Kunt et al., 2021). However,

This preprint research paper has not been peer reviewed. Electronic copy available at: https://ssrn.com/abstract=4613716
 a significant number of severe tests – as witnessed recently - may have serious implications for
the resilience of the banking system.

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A strong body of literature was devoted to the understanding of the international transmission
of shocks among market equity and banking sector during several episodes of crisis: Covid-19
((Borri and Giorgio, 2022; Demirgüç-Kunt et al., 2021; Tsuji, 2020), the Ukrainian-Russian

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war (Boubaker et al., 2023) and more recently the SVB failure (Yadav et al., 2023; Yousaf et
al., 2023). Most of these previous studies focus on a specific crisis or subperiod and analyze
market and commodity indices. However, understanding the global reaction of the banking
sector amid several episodes of crises was neglected in the literature. Our study fills this gap by

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proposing an empirical framework to understand the international transmission of shock among

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the banking industry during several crises i.e., the covid 19, the Ukrainian war, and the SVB
bank run.
We use in the first step, the ICSS algorithm to detect the structural breaks in volatility returns.
Then we run an AR (1) FIEGARCH (1,d,1) model to detect the persistence and the asymmetries
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of the shock among the banking sector in the G7 and BRICS countries. Our results reveal that
the banking indices reacted severely during Covid 19 crisis and were the most prominent in
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showing strong uncertainty. In addition, we report a short-lived volatility persistence during the
Ukrainian war and the Svb bank run turmoils from the US banking sector to the G7 and the
BRICS.
The remainder of the article is structured as follows: section 2 describes the sample and data
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while Section 3 introduces the methodology framework including a description of the ICSS
algorithm and AR (1) FIEGARCH (1,d,1) model. Section 4 produces the empirical estimation
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results. Finally, in section 5 we will summarize and conclude.

2. Literature review
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The banking system is highly fragile as a banking crisis is often followed by costly currency
and debt crises (Laeven and Valencia, 2013). Understanding the reaction of the banking system
to different episodes of the crises remains challenging to maintain sound fundamentals and a
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strong prudential framework (Dungey and Gajurel, 2015). Conversely, studies on volatility in
the international banking sector are relatively limited. Given the crucial role of the banking
sector in holding a sustainable financial system, we conducted a study to investigate the reaction
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of bank stocks during recent turmoil.

This preprint research paper has not been peer reviewed. Electronic copy available at: https://ssrn.com/abstract=4613716
 Our study relates to the small but growing literature on the banking sector's volatility and
reaction to the recent crises. Financial markets have witnessed several turmoils. First the health

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crises i.e. the covid 19 pandemic (Apergis et al., 2023; Bischof et al., 2021; Borri and Giorgio,
2022; Bouri and Jalkh, 2023; Demirgüç-Kunt et al., 2021; Le et al., 2022; Nguyen et al., 2022),
second, the ongoing Ukrainian- Russian war and its geopolitical aftermath (Baur and Smales,

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2020; Boubaker et al., 2023; Engle and Campos-Martins, 2023; Gheorghe and Panazan, 2023;
Izzeldin et al., 2023; Shaik et al., 2023) and finally the SVB failure (Martins, 2023; Pandey et
al., 2023; Yadav et al., 2023; Yousaf et al., 2023).

(Demirgüç-Kunt et al., 2021) conduct a study to assess the impact of the covid-19 on the

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banking sector in 52 countries. Their findings suggest that the adverse impact of the pandemic

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shock on banks was the most pronounced and long-lasting among corporates and non-bank
financial institutions. Their findings reveal that banks have a greater vulnerability to shocks,
which means that they are expected to have a greater role in dealing with the crisis and to absorb
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at least part of the shock to the corporate sector.

(Tsuji, 2020) studied the transmission of shocks in the banking sector in the US and eight
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international banking sectors from the G10. The results show that stock return transmission is
unidirectional only from the US. Indeed, little stock return transmission was observed from the
other eight international banking sectors to the US banking sector. In addition, the findings
reveal that the volatility spillover is bidirectional and strongly tied to the leverage effect.
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In a different context, (Boubaker et al., 2023) investigate the impact of the Russian and
Ukrainian wars on global bank stocks. Using data from 91 countries and event studies, this
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research shows that bank stocks globally fell by an average of 1.5% on the first day of the war
and that the war significantly impacted the bank’s shares. This implies that the decline in the
banking sector during the war was more pronounced than the average stock market movement.
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This reaction indicates the market’s expectation regarding the risk considering that banking is
the sector that maintains the financial system’s stability. In addition, this study documents that
Europe, Asia, and North America are the most susceptible to shocks from an international
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adverse event.
More recently, (Martins, 2023) analyzed the short-term market impact of Silicon Valley Bank
and Credit Suisse failure in the European banking industry. Using an event study methodology
for the 100 largest European listed banks, the study revealed a negative and statistically
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significant stock price decline in response to the failure announcement of the Silicon Valley
Bank and Credit Suisse banks. Moreover, the study emphasizes that banks’ past characteristics

This preprint research paper has not been peer reviewed. Electronic copy available at: https://ssrn.com/abstract=4613716
 in terms of risk aversion, capitalization, profitability, liquidity, operational efficiency, and
ownership can build resilience to stock declines in case of bank failures.

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3. Data

Our data comprises daily adjusted closing prices of fourteen sectorial banking stock indices

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listed in the G7 and BRICS countries. Data are extracted from Thomson Reuters DataStream
covering the period from January 02, 2018, to April 28, 2023. We divide the total period into 3
sub-periods. the first is called the pre-Covid-19 crisis ( from January 02, 2018, to March 11,
2020), the second is called the Covid-19 period ( from March 12, 2020, to February 23, 2022),

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and the third is called the Ukrainian war and banking crisis (from February 24, 2022, to April
28, 2023 ).

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[Insert table 1]

Table 1 displays the summary statistics of the banking stock indices in our sample. These series
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present similar properties. The mean for the entire sectorial banking indices returns is proved
to be positive for all BRICS countries except for China. India's banking sector has the highest
return while the German banking sector has the lowest. Moreover, we report that the American,
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German, Italian, and Chinese banking sectors are the most volatile in our sample. The Skewness
values show that all marginal distributions are asymmetrical to the left. The Kurtosis high
values indicate that these sectorial indices have flattened distributions, thus bearing extreme
values on the tails. In addition, the Jarque Bera normality test confirms that the distribution is
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not governed by a normal distribution.

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[Insert figure 1]

The Lagrange multiplier test reveals the presence of an ARCH effect in all the return series.
The results of Ljung-Box statistical values indicate the presence of a significant inter-return
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autocorrelation. The same test applied to the square-return series confirms the presence of an
auto-correlation of a second order between the return series; hence there is a non-linear
dependence of the return series. The modified R/S test pertinent results reveal the existence of
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long memory in all the return series. The existence of long memory in the return series enables
us to use such nonlinear long-memory models, such as the FIEGARCH model.

4. Methodology
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To study the banking stocks' reaction to the different episodes of crisis (Covid-19, Ukrainian

This preprint research paper has not been peer reviewed. Electronic copy available at: https://ssrn.com/abstract=4613716
 war, and SVB banking crises) among the G7 and the BRICS countries, we use two empirical
frameworks. In the first step, we refer to the ICSS algorithm to determine the existence of

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potential structural breaks. In the second step, we run the FIEGARCH model to examine the
volatility dynamics during the three episodes of crises in our study.

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4.1 Structural break test:

The Iterated Cumulative Sum of Squares (ICSS) algorithm developed by (Inclán and Tiao,
1994) and recently extended by (Sansó et al., 2003) is based on successive iterations of the
CUSUM test. It aims, in particular, to determine further structural breakpoints of the

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unconditional return variance induced by an exogenous shock. In other words, we test the null
hypothesis that this unconditional variance is constant against the alternative hypothesis of a

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break in the unconditional variance at some dates of the sample. Indeed, the ICSS methodology
assumes that the time series has a stationary variance from a fixed time to a date characterized
by a sudden change in variance. er
Then, according to (Sansó et al., 2003), we specify the conditional variance as:

{
ℎ0 𝑠𝑖 1 < 𝑡 < 𝑐1
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ℎ1 𝑠𝑖 𝑐1 < 𝑡 < 𝑐2
…
ℎ𝑡 = …
…
ℎ𝑀 𝑠𝑖 𝑐𝑀 < 𝑡 < 𝑇
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(1)

where:𝑐𝑗 (𝑗 = 1, ..., 𝑀) indicates the dates of the structural breaks. To estimate the number of
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structural breaks in the volatility trend, a cumulative sum square of residuals is calculated. To
do this, let 𝐶𝑘 = ∑𝑘𝑡=1 𝑢2𝑡 ,  𝑘 = 1, …, 𝑇., be the cumulative sum of squares of {𝑢𝑡}series, then

the Dk statistic can be computed as follows:

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C  k
D k   k   , k  1, ...., T a n d D 0  D T  0 (2)
 CT  T
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The iterated cumulative sum of squares (ICSS) algorithm based on the Dk statistic is applied to

detect multiple breaks in the unconditional variance of{𝑢𝑡} series. Under the null hypothesis: 𝐻0

:𝑣𝑎𝑟(𝑢𝑡) = ℎ0, the Dk statistic converges in distribution to a standard Brownian motion. H0 is

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This preprint research paper has not been peer reviewed. Electronic copy available at: https://ssrn.com/abstract=4613716
 T
rejected when K∗ = maxk ( |Dk|) is outside the critical interval [ ― 1,358 × 𝑘∗; 1,358 × 𝑘∗].
2

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In this case,𝑘∗ is a breakpoint at 95%1.

The FIEGARCH model

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In our methodological framework, we choose to apply a Fractionally Integrated Exponential
GARCH (FIEGARCH) model (p, d, q). This class of models has the particularity of capturing
the main stylized fact of time series i.e. nonlinearity of structural dependencies between series,
autocorrelation, and non-normal distribution. Additionally, the FIEGARCH model provides

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valuable information on shock asymmetries and persistence issues.

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(Bollerslev and Ole Mikkelsen, 1996) extended the classes of the GARCH models to the
EGARCH fractional integrated model. The FIEGARCH (p, d, q) model can be obtained by
expanding the EGARCH (p, q) model, which follows a close process to the GARCH (p, q)
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model. This expansion takes into consideration the long memory autoregressive polynomial
factoring [1-β(L)]=ϕ(L)〖(1-L)〗^d, where all the roots of ϕ(z)=0 are situated outside the unit-
root circle. The specification of the FIEGARCH (p, d, q) model is as follows:
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ln (ℎ𝑡) = 𝜔 + 𝜙(𝐿)―1(1 ― 𝐿)―𝑑[1 + 𝛼(𝐿)]𝑔(𝑧𝑡―1) (3)

with: 𝑔(𝑧𝑡) = 𝛾1𝑧𝑡 + 𝛾2[|𝑧𝑡| ― 𝐸|𝑧𝑡|]

In line with ARFIMA models, the logarithm of the conditional variance, represented as
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{ln (ℎ𝑡)} , exhibits stationary covariance and is invertible when the value of d falls within the
range of [-0.5, 0.5] (Bollerslev and Mikkelsen, 1996). However, the long memory attributes fall
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off for all values of d less than 1. Following (Bollerslev and Ole Mikkelsen, 1999), the AR (1)-
FIEGARCH (1, d, 1) model is implemented to examine the dynamic of return volatilities. This
model can be defined as follows:
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𝑟𝑡 = 𝛼0 + 𝛼1𝑟𝑡―1 + 𝜀𝑡 (4)

𝜙(𝐿)(1 ― 𝐿)𝑑ln (𝜎2𝑡 ) = 𝐴 + (𝑏|𝑥𝑡―1| + 𝛾𝑥𝑡―1) (5)

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𝛾𝑗 ≠ 0, estimates the leverage effect. 𝑥𝑡 are standardized errors:

𝜀𝑡
𝑥𝑡 =
𝜎𝑡
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1 For more details about the ICSS algorithm, see Inclan and Tiao (1994).

This preprint research paper has not been peer reviewed. Electronic copy available at: https://ssrn.com/abstract=4613716
 The FIEGARCH model is stationary if 0 < 𝑑 < 1 according to (Bollerslev and Ole Mikkelsen,
1996). The coefficient d allows measuring the shock persistence degree to volatility.

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5. Results

Table 2 reports the periods of structural breaks in volatility as identified by the ICSS algorithm.

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We may notice that Japan has the least structural breaks in the g7 countries (only 5) against 13
break points in the UK. South Africa is the least to exhibit structural changes (only 4) in the
BRICS, while Russia has the most important number (13). The results show that the covid 19
crisis was the most prominent in showing structural breaks among the BRICS and G7.

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Amid the major events of crises, we may notice that the US and Canadian banking sectors
witnessed a structural change one day before the official announcement date of the war on

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February 24, 2022. On that day President Biden qualified Russia's moves as an "invasion" and
announced new sanctions against Russia. These announcements were responsible for shifting
investors' sentiment and predicting the worst-case scenario before the actual date of the
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announcement. Banks in Europe were severely affected since the first day of the war when we
notice the structural changes in the UK, France, and Germany except for Italy. We report also
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that the BRICS countries except Russia did not witness any changes in volatility in response to
the war.
[Insert table 2]

As for the SVB failure, we report that surprisingly, the US banking and financial sectors as well
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as Canada did have a structural break on March 7, 2023, i.e., one day before the SVB
announcement about its intentions to sell $1.25 billion of common stock and $500 million of
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depository shares to respond to the rising request for withdrawals. Notably, all countries in G7
except for Japan reacted on the same date as the announcement. This result implies a significant
impact of the SVB bank run on the Us and European banks. In March, the US, and European
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bank stock prices sold off significantly, by about 25 and 14 percent (“Global Financial Stability
Report, April 2023,”). These results give strong evidence that even idiosyncratic turmoil in the
banking sector can trigger systemic implications on the global banking system and generate a
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general loss of confidence across borders (Yadav et al., 2023). In addition, These findings, in
line with (Tsuji, 2020), emphasize how the US banking sector can be the main driver of the
global transmission of shocks in the financial system.
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[Insert table 3]

This preprint research paper has not been peer reviewed. Electronic copy available at: https://ssrn.com/abstract=4613716
 Table 3 reports the estimated results of the FIEGARCH model during the three sub-period (
before the covid19, the Covid-19 crisis, and the Ukrainian war and banking crisis). The model

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is generally well specified and the results appear to be statistically significant, except for a few
indices. Indeed, we may well notice the prevalence of two important results appearing in this
table. First, during the pre-covid period, we note that the effect of shocks on the volatility of

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the returns of the banking sectors of the G7 and BRICS countries is transitory (since d<0.5)
except for Brazil, India, and South Africa. The persistence of the volatility in these specific
countries can be related to a domestic shock in the banking sector (Bekaert et al., 2014).
During the Covid-19 period, all the banking sectors in our sample were affected in the long run

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by this health crisis. The effect was permanent except for the Japanese banking sector which

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showed strong resilience against this crisis. This strong persistence has its explanation in the
structural changes that can be introduced in the variance process (Lamoureux and Lastrapes,
1990). During the next episodes of the turmoil i.e. the Ukrainian war and the SVB bank run,
the results show mixed features. From the G7, only the US and Canadian banking sector did
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show a long memory reaction to turmoil while from the BRICS we find Russia, China, and
India. All European countries and Japan did not exhibit a long-term memory in reaction to the
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crises.
6. Conclusion
This study aims to examine the reaction of the banking sector in G7 and the BRICS to several
episodes of crises. To this end, we used two empirical frameworks. First, we apply the ICSS
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algorithm to detect the structural breaks in returns during turmoil periods. Subsequently, we
run the AR (1) FIEGARCH (1,d,1) model to examine the volatility dynamics during the health
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crisis and the geopolitical tensions.

Our findings reveal that the banking sector was indeed exposed to major turmoils but at
different levels. First, we report that the Covid-19 crisis was the most turbulent phase for the
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banking sector. In line with these results, the AR(1) FIEGARCH (1,d,1) model displays that
the shocks during this crisis were persistent in the long run for all countries except for Japan.
Conversely, these findings diverge from the results of (Shaik et al., 2023) who report that the
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highest exposure to geopolitical risks among crude oil and market stock indexes was observed
during the Ukrainian-Russian war. The reaction of the banking sector to the ongoing
Ukrainian-Russian war and the SVB bank run shows different patterns in our study. Most of
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the countries of our simple did not exhibit long-term persistence of shocks but did exhibit
structural changes in volatility. These structural breaks were mainly observed during specific

This preprint research paper has not been peer reviewed. Electronic copy available at: https://ssrn.com/abstract=4613716
 key dates related to the major announcement. These results imply that during the ongoing
Ukrainian war and the SVB failure, the reaction of the banking sector was mostly driven by

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transitory volatility.

Finally, our findings suggest that North America can be likely the main driver of volatility

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during the recent turmoils. This conclusion is in line with the wake-up call hypothesis: A crisis
in a particular country prompts investors to reassess risk in other countries with similar
fundamentals. Accordingly, investors will proceed to revise their beliefs for all countries that
share the same characteristics or unobserved common risk factors with the
crisis country (Bekaert et al., 2014).

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This study has several implications for policymakers. First, by analyzing several episodes of

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crisis we succeed in assessing the long-term effect of shocks in the banking sector.
Additionally, we brought evidence that the banking sector was resilient during the SVB failure
and the ongoing war in both the G7 and the BRICS. Furthermore, our finding brings insights to
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portfolio managers and investors about the benefits of holding stocks in the banking industry
in turmoil.
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The Lost Bank, 2013.
Tsuji, C., 2020. Correlation and spillover effects between the US and international banking
sectors: New evidence and implications for risk management. International Review of
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Financial Analysis 70, 101392. https://doi.org/10.1016/j.irfa.2019.101392
Yadav, M.P., Rao, A., Abedin, M.Z., Tabassum, S., Lucey, B., 2023. The domino effect:
Analyzing the impact of Silicon Valley Bank’s fall on top equity indices around the world.
Finance Research Letters 103952. https://doi.org/10.1016/j.frl.2023.103952
ot

Yousaf, I., Riaz, Y., Goodell, J.W., 2023. The impact of the SVB collapse on global financial
markets: Substantial but narrow. Finance Research Letters 103948.
https://doi.org/10.1016/j.frl.2023.103948
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 Table 1: Descriptive statistics
Mean Maximum Minimum
Std.
Skewness Kurtosis Jarque-Bera Q(12) Q2(12)
RS/Mod
LM Obs.
e d
w
Dev.
USBKX -0,01950 13,81603 -17,67836 2,12404 -0,51752 13,33208 6060,567*** 134,28*** 1277,30*** 2.7125*** 373,96*** 1370

e
CANADA 0,01022 13,92957 -13,71739 1,26974 -0,64721 42,45117 87576,53*** 173,94*** 1773,30*** 2.3836*** 635,83*** 1370
UK -0,02326 11,54530 -11,11832 1,69021 -0,20255

v i
9,30200 2241,546*** 29,54*** 264,39*** 3.2141*** 155,06*** 1370
G7

FRANCE -0,00951 11,17699 -15,11307 1,60347 -0,92316 17,31032 11702,24*** 60,98*** 671,80*** 2.8596*** 292,18*** 1370
GERMANY -0,02656 11,36100 -20,38152 2,47438 -0,69340 9,48239 2470,052*** 26,18** 259,78*** 2.0504** 170,90*** 1370
ITALY
JAPAN
BRAZIL
0,00090
-0,02742
0,01407
10,37853
5,27403
12,35770
-18,90713
-8,36149
-14,25050
2,05374 -1,05547 12,44264 5262,198*** 34,70*** 385,90*** 1.6692*
1,38990 -0,23407 5,06814 252,733*** 20,63* 303,99***

r e
1.7968*
207,03*** 1370
163,16*** 1370
1,90492 -0,44804 11,05105 3688,527*** 68,87*** 1703,90*** 2.2056*** 522,23*** 1370
RUSSIA 0,00623 12,28027 -24,65795

r
1,85675 -3,11597 41,26689 84491,92*** 45,95*** 510,43*** 2.4827*** 436,69*** 1370
BRICS

e
INDIA 0,03502 7,98390 -18,31300 1,58429 -1,28819 20,91805 18419,150*** 38,03*** 513,58*** 3.1493*** 281,52*** 1370
CHINA -0,01222 44,61931 -65,35416 2,53590 -8,19684 402,15120 8970310*** 139,98*** 213,02*** 2.072*** 245,54*** 1370
SOUTHAFRICA 0,00003 9,91154 -16,13201

e
1,99341 -0,54020 10,29677 3058,306***

p
16,04 1137,80*** 2.9001*** 413,35*** 1370
Note: (*) statistical significance at the 10% level; (**) statistical significance at the 5% level, (***) statistical significance at the 1% level

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USBKX
Table 2 : Structural breaks test
USIXBK USFINANCIAL CANADA UK FRANCE GERMANY ITALY RUSSIA CHINA JAPAN INDIA
e d
SOUTHAFRICA BRAZIL
02/02/2018 02/02/2018

09/04/2018
05/04/2018

10/04/2018

i ew
v
16/04/2018 16/04/2018
19/04/2018

e
16/05/2018

r
17/05/2018
12/06/2018

r
19/09/2018
10/10/2018 10/10/2018 10/10/2018 10/10/2018

e
02/11/2018
20/11/2018

07/01/2019
22/01/2019

p e 19/02/2019
11/12/2018

22/02/2019

o t 02/04/2019
22/02/2019

16/05/2019
02/04/2019

n
17/05/2019
30/07/2019

t
12/09/2019
17/09/2019

ir n
11/10/2019
23/01/2020
28/01/2020
06/02/2020

24/02/2020
27/02/2020

e p
24/02/2020
27/02/2020
24/02/2020
20/02/2020

27/02/2020
24/02/2020 24/02/2020

P r 13
09/03/2020
06/03/2020
05/03/2020

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 26/03/2020 26/03/2020
11/03/2020
23/03/2020
26/03/2020
e d
27/03/2020 27/03/2020 27/03/2020

i ew
16/04/2020
07/04/2020
08/04/2020

v
17/04/2020
29/04/2020

15/06/2020
12/06/2020 12/06/2020 12/06/2020

17/06/2020

r e
r
25/06/2020
29/06/2020 29/06/2020

e
01/07/2020
22/07/2020

26/10/2020
03/11/2020
26/10/2020

11/11/2020

p e 11/11/2020
27/07/2020

02/12/2020 02/12/2020

o t 22/12/2020
17/11/2020

n
05/02/2021
09/03/2021

t
11/03/2021
15/03/2021

ir n
31/03/2021
09/04/2021
30/04/2021
24/05/2021

e p 26/11/2021
29/10/2021
25/10/2021

P r 21/01/2022
24/01/2022

14
13/01/2022

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17/02/2022
08/02/2022
14/02/2022

e d
23/02/2022 23/02/2022
24/02/2022 24/02/2022 24/02/2022
21/02/2022

28/02/2022

i ew
v
17/03/2022 17/03/2022 17/03/2022
18/03/2022
29/03/2022

28/04/2022

r e 06/04/2022

r
29/04/2022
20/07/2022

e
20/09/2022
05/10/2022

07/11/2022
18/10/2022

p e 07/10/2022

20/10/2022

11/11/2022

07/03/2023 07/03/2023
11/11/2022 11/11/2022

07/03/2023 07/03/2023

o t 20/12/2022

n
10/03/2023 10/03/2023 10/03/2023 10/03/2023
Note: the table presents the different date of structural breaks.

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 Table 3: The AR(1)-FIEGARCH(1, d, 1) estimation
C AR(1) A GARCH(1) ARCH(1) γ d

ed
USBKX -0,0003 0,0670* -0,3883** 0,6986*** 0,1509*** -0,2359*** 0,3142**
CANADA 0,0000 0,1874*** -0,3256*** 0,5656*** 0,1432*** -0,2392*** 0,4141***
UK -0,0008** -0,0293 -0,1363*** 0,8864*** 0,1817*** -0,1082*** 0,4160***
Pre-COVID period

G7

France -0,0003 0,1886*** -0,3836** 0,5281*** 0,1580*** -0,2156*** 0,3872***

GERMANY -0,0014* 0,0849** -0,0813 0,9547*** 0,0503*** 0,0018*** 0,2905***

iew
ITALY -0,0003 0,0825** -0,2441*** 0,3166 0,1071** -0,2424*** 0,3793***
JAPAN -0,0013*** 0,0596* -0,5580 0,2553 0,2093*** -0,1206*** 0,4500**
BRAZIL 0,0003 0,0860*** 0,0673** 0,5304** 0,0961*** -0,1383*** 0,8158***
RUSSIA 0,0000 -0,0094 -0,0761*** 0,9496*** 0,0855*** -0,0307*** 0,4571***
BRICS

INDIA 0,0005 0,0668* -0,3941*** 0,5347*** 0,4165*** -0,2356*** 0,6750***

CHINA -0,0012*** 0,0410*** -0,0318*** 0,7429*** 0,2205*** -0,3424*** 0,3808***
SOUTHAFRICA -0,0010* -0,0835** 0,0011 0,8937*** 0,0013 -0,0117* 0,8824***

v
USBKX 0,0003 -0,0285 -0,2611*** 0,4658** 0,2193*** -0,1348*** 0,5377***
CANADA 0,0004* 0,0466 -0,3283*** 0,4612*** 0,2859*** -0,1267*** 0,5377***

re
UK 0,0002 -0,0300 -0,0994** 0,6660*** 0,0824*** -0,0526** 0,5747***
G7

France 0,0004 0,0154 -0,1005*** 0,6637*** 0,0874*** -0,1112*** 0,5993***

COVID period

GERMANY 0,0004 -0,0072 -0,0529*** 0,7586*** 0,0490*** -0,0569*** 0,6306***

ITALY 0,0004 0,0056 -0,1899*** 0,7920*** 0,1501*** -0,0975*** 0,5393***
JAPAN 0,0003 0,0253 er -0,2996* 0,8628*** 0,1248*** 0,0036 0,2520
BRAZIL 0,0000 -0,1265*** -0,1378*** 0,5713*** 0,1137*** -0,0975*** 0,5892***
RUSSIA 0,0014** 0,0393 -0,2023*** 0,5586*** 0,2160*** -0,1177*** 0,5992***
BRICS

INDIA 0,0003 0,1172*** -0,1473*** 0,7872*** 0,1105*** -0,0863*** 0,4601***

CHINA 0,0005 0,0151 -1,4540 0,8548*** 0,1410*** -0,0383* 0,5328***
pe
SOUTHAFRICA 0,0008 0,0687* -0,1393*** 0,7918*** 0,1198*** -0,0658*** 0,4996***
USBKX 0,0003 -0,0567 -0,2109*** 0,4790** 0,1775*** -0,1206*** 0,5559***
CANADA -0,0001 0,1062** 0,0795* 0,4437 0,1779** -0,2269 0,7568***
UK 0,0001 -0,0472 -0,9401** 0,8340*** 0,1044** -0,2142*** 0,0771
G7

France 0,0007 0,0379 -0,5093*** 0,8143*** 0,0518 -0,2667*** 0,1956*

Crisis period

GERMANY -0,0002 -0,0347 -0,3281** 0,8399*** 0,0363 -0,2022*** 0,1877*

ot

ITALY 0,0015* -0,0144 -0,8210*** 0,8544*** 0,0491 -0,2843*** 0,0621

JAPAN 0,0007 -0,0947** -0,9438 0,8450*** 0,1719*** 0,0801*** 0,4690***
BRAZIL 0,0001 0,1014* -3,0576 0,8531*** 0,1430* 0,0161 0,2521
tn

RUSSIA 0,0007 0,1059** -0,3088*** 0,4231** 0,1448*** -0,0650** 0,5777***

BRICS

INDIA 0,0003 0,0698* -0,2512*** 0,3812* 0,1378** -0,2874*** 0,6477***

CHINA -0,0004 -0,0505 -0,3327* 0,8107*** 0,2045*** -0,1748*** 0,6468***
SOUTHAFRICA 0,0000 0,0032 -1,6449 0,4129 0,3431*** 0,0678 0,1972
rin

Note: (*) statistical significance at the 10% level; (**) statistical significance at the 5% level, (***) statistical significance at
the 1% level.
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 USBKX USIXBK

0.10

ed
0.05

0.00
Return

Return
-0.05

-0.10

iew
-0.15

Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1
2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 2022 2023
Time Time

US FINANCIAL CANADA

v
0.10
0.05

re
Return

Return

0.00
-0.05

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Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1
2018 2019 2020
Time
2021
er
2022 2023
Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1
2018 2019 2020
Time
2021 2022 2023

UK FRANCE
pe 0.05
0.06
Return

Return
-0.02

-0.05
ot
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Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1
2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 2022 2023
tn

Time Time

GERMANY ITALY
0.10

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rin
0.00
Return

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ep -0.20

Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1
2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 2022 2023
Time Time
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 JAPAN BRAZIL

0.10
0.04

ed
0.00

0.00
Return

Return
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iew
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-0.08

Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1
2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 2022 2023
Time Time

RUSSIA INDIA

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re
0.00

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Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1
er Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1
2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 2022 2023
Time Time
pe
CHINA SOUTHAFRICA
0.4

0.05
0.2
0.0
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Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1
2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 2022 2023
Time Time

Figure 1: Return evolution of sectorial banking of G7 and BRICS countries

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