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The Dynamics of Return Comovement and Spillovers Between the Czech and European Stock Markets in the Period 1997–2010

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Abstract

The paper examines the comovement and spillover dynamics between the returns of the Czech and some major European stock markets (namely, the Austrian, French, German, and UK markets, as well as the Central and Eastern European stock markets of Poland, Hungary, and Slovenia). By applying the Dynamic Conditional Correlation GARCH model and Granger causality tests on wavelet transformed returns series for the period April 1997–May 2010 the following specific questions are answered. Is the comovement (correlation) between the Czech and European stock markets time-varying? What effect did the financial crises in the period 1997–2010 and the accession of the Czech Republic to the European Union have on the comovement between the Czech and European stock markets investigated? We also investigate whether there were return spillovers between the markets and whether they depended on the horizon over which they are calculated (i.e., are they a multiscale phenomenon). We found that comovement between the Czech and other stock market returns is time-varying. Furthermore, we found significant return spillovers between the Czech and European stock markets in the observed period. The wavelet Granger causality tests show that return spillovers were a multiscale phenomenon.

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Bibliographic Info

Article provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.

Volume (Year): 62 (2012)
Issue (Month): 4 (August)
Pages: 368-390

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Handle: RePEc:fau:fauart:v:62:y:2012:i:4:p:368-390

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Keywords: DCC-GARCH; wavelet analysis; stock markets; Czech Republic; comovement;

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Cited by:
  1. Tse, Chin-Bun & Rodgers, Timothy & Niklewski, Jacek, 2014. "The 2007 financial crisis and the UK residential housing market: Did the relationship between interest rates and house prices change?," Economic Modelling, Elsevier, vol. 37(C), pages 518-530.

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