Financial integration and portfolio investments to emerging Balkan equity markets
AbstractThe study investigates the risk and return profile of international portfolios allocated by investors to major Balkan equity markets, namely Romania, Bulgaria, Croatia, Turkey, Cyprus and Greece against developed markets, Germany and the US. An error-correction vector autoregressive framework models financial integration and investigates causality effects and cointegration vectors, depicting short- and long-run dynamic linkages. The empirical findings support the presence of two cointegration vectors, indicating a stationary long-run relationship. Both domestic and external forces affect equity market behavior, leading to a long-run equilibrium. These findings are important for international asset allocation, since long-run comovements imply that risk diversification and attainment of superior portfolio returns in the Balkan equity markets may be limited for international investors, although short-run benefits may be potentially feasible in arbitrage mispricings.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Multinational Financial Management.
Volume (Year): 21 (2011)
Issue (Month): 1 (February)
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Web page: http://www.elsevier.com/locate/mulfin
Market comovements Dynamic cointegration Causality effects Portfolio diversification Balkan equity markets;
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