Eastern European Equity Markets and the Subprime Crisis Does Emerging Europe Still Offer Diversification Benefits?

The stock markets in Eastern Europe went through a period of rapid growth. Those which joined the EU had to integrate with Western Europe on various levels, which had important implications for their equity price development during the subprime mortgage crisis. The aim of the paper is to analyze the developments in the stock markets of Eastern European countries before and during the subprime crisis and to evaluate the hypothesis of disappearing portfolio diversification opportunities in the region. Through the application of correlation analysis, Markowitz mean variance approach and portfolio optimisation strategy based on the Sharpe ratio, it is shown that diversification opportunities for a US investor in the Eastern European region have largely disappeared.

CORPORATE DEBT AND CRISIS SEVERITY IN EUROPE

The aim of this paper is to analyse the financial structure of non-financial corporations in the European Union prior to the 2008 crisis and to determine whether the ex-ante differences in corporate financial structure had an impact on the severity of the 2008 financial crisis in European countries. The analysis confirms a negative relationship between the corporate debt ratio prior to the crisis and crisis-induced contractions in corporate investment and GDP. The results indicate a greater importance of the growth in corporate indebtedness in the years prior to the crisis for crisis vulnerability than solely the level of debt immediately before the crisis. The paper has several important implications for crisis prevention and mitigation policy

EASTERN EUROPEAN EQUITY MARKETS AND THE SUBPRIME CRISIS. DOES EMERGING EUROPE STILL OFFER DIVERSIFICATION BENEFITS?

The stock markets in Eastern Europe went through a period of rapid growth. Those which joined the EU had to integrate with Western Europe on various levels, which had important implications for their equity price development during the subprime mortgage crisis. The aim of the paper is to analyze the developments in the stock markets of Eastern European countries before and during the subprime crisis and to evaluate the hypothesis of disappearing portfolio diversification opportunities in the region. Through the application of correlation analysis, Markowitz mean variance approach and portfolio optimisation strategy based on the Sharpe ratio, it is shown that diversification opportunities for a US investor in the Eastern European region have largely disappeared

Middle Eastern stock markets: absolute, evolving and relative efficiency

The martingale hypothesis is tested for 11 Middle Eastern stock markets using three finite sample variance ratio tests. For comparative purposes, the same tests are applied to data for the United States. The tests are carried out with both observed returns and returns corrected for thin trading so the effect of the thin trading correction is evident. A rolling window is used to track changes in efficiency through time and rank markets by relative efficiency. Overall, most markets experience successive periods of efficiency and inefficiency which is consistent with the adaptive markets hypothesis. Predictability varies widely: the least predictable stock markets are those located in Turkey, Egypt and Israel; the most predictable are in Jordan, Lebanon and Saudi Arabia. When returns are corrected for thin trading, there is much less variation in relative efficiency