Analysis of the relationships between indexes on Polish and American Stock Exchange

Abstract

For research purposes, in order to show relationships between values of American S&P500 index and Polish WIG index, two models have been constructed. Because of the volume of the American Stock Exchange, the analysis should answer the question of “how the situation on American Stock Exchange affects the situation on Polish Stock Exchange”. As a result of different opening hours of these stock exchanges, the models can be described: • model I – influence of opening the American Stock Exchange during closing the Polish Stock Exchange on the same day (S&P500t open › WIGt close); • model II – influence of closing the American Stock Exchange on opening the Polish Stock Exchange on the next day (S&P500t–1 close › WIGt open). To show the short-run and long-run relationships, one equation ECM was estimated by using the Engle-Granger procedure. The results allow us to draw two conclusions: 1. The long-run relationship between the stock exchanges is statistically strong and important. It is difficult to disturb the long-run equilibrium. 2. Current changes of the American stock exchange have stronger influence on current changes of Polish exchanges in the long term than the past changes on Polish exchange, which indicates very fast flow of current information among markets.capital market, stock indexes, stationarity, cointegration, ECM model