LONG AND SHORT-RUN LINKAGES IN CEE STOCK MARKETS: IMPLICATIONS FOR PORTFOLIO DIVERSIFICATION AND STOCK MARKET INTEGRATION

This paper examines the short- and long-term relationships between seven Central Eastern European (CEE) stock markets and two developed stock markets, namely the German market and the US market. Application of the Gonzalo and Granger (1995) methodology indicates that the examined stock markets are partially integrated, while there is also evidence that the five stock markets in the central Europe (Czech Republic, Hungary, Poland, Slovenia and Slovakia) together with the German and the US stock markets have a significant common permanent component, which drives this system of stock exchanges in the long run. Contrary, the Estonian and Romania markets are segmented. A DCC model indicates that the short ñ term interdependencies between the CEE stock markets and the developed stock markets have strengthened during the Asian and Russian crises but since then (except for the Czech Republic, Hungary, Poland) they returned almost to their initial (relatively low) levels. Moreover, significantly increased volatility is observed during the Russian crisis period for all the markets under enquiry.http://deepblue.lib.umich.edu/bitstream/2027.42/57212/1/wp832 .pd

German, US and Central and Eastern European Stock Market Integration

Central and Eastern European stock market integration, Cointegration, Common stochastic trends, Permanent and transitory components, G15, C12, C32, F36,

Switching Volatility in Emerging Stock Markets and Financial Liberalization: Evidence from the new EU Member Countries

In this paper, we use weekly stock market data to examine whether the volatility of stock returns of ten emerging capital markets of the new EU member countries has changed since the opening of their capital markets. In particular we are interested in understanding whether there are high and low periods of stock returns volatility and what the degree of correlation across these markets is. We estimate a Markov-Switching ARCH (SWARCH) model proposed by Hamilton and Susmel (1994) and we allow for the possibility that two or three volatility regimes may exist for stock returns volatility. The main finding of the present study is that the high volatility of stock returns of all new EU emerging stock markets is associated mainly with the 1997-1998 Asian and Russian financial crises as well as over the 2007-2009 financial turmoil, while there is a transition to the low volatility regime as they approach the accession to the EU in 2004. It is also shown that the capital flows liberalization process has resulted in an increase in volatility of stock returns in most cases

Dynamic correlation analysis of financial contagion: Evidence from the Central and Eastern European markets

This paper applies the Dynamic Conditional Correlation (DCC) multivariate GARCH model of Engle (2002), in order to examine the time-varying conditional correlations to the weekly index returns of seven emerging stock markets of Central and Eastern Europe. We used weekly data for the period 1997-2009 in order to capture potential contagion effects among the US, German and Russian stock markets and the CEE stock markets. The main finding of the present analysis is that there is a statistically significant increase in conditional correlations between the US and the German stock returns and the CEE stock returns, particularly during the 2007-2009 financial crises, implying that these emerging markets are exposed to external shocks with a substantial regime shift in conditional correlation. Finally, we demonstrated that domestic and foreign monetary variables, as well as exchange rate movements have a significant impact on the corresponding conditional correlations. Macroeconomic fundamentals have been shown to have substantial explanatory power in explaining these conditional correlations during the financial crisis of 2007-2009.Emerging European stock markets Financial contagion Dynamic conditional correlations Financial crises