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International portfolio diversification to Central European stock markets

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Theodore Syriopoulos

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Abstract

The presence of short- and long-run linkages among major emerging Central European stock markets, namely Poland, Czech Republic, Hungary, and Slovakia, as well as developed markets, particularly Germany and the USA, is investigated. An error correction vector autoregressive model is estimated to detect cointegration relationships and the empirical findings support the presence of one cointegration vector, indicating a stationary long-run relationship. Both domestic and external forces affect stock market behaviour, leading to long-run equilibrium but the individual Central European markets tend to display stronger linkages with their mature counterparts rather than their neighbours. Long-run co-movements imply that diversifying risk and attaining superior portfolio returns by investing in different Central European markets may be limited for international investors.

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Article provided by Taylor and Francis Journals in its journal Applied Financial Economics.

Volume (Year): 14 (2004)
Issue (Month): 17 (November)
Pages: 1253-1268
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Handle: RePEc:taf:apfiec:v:14:y:2004:i:17:p:1253-1268

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Köke, Jens & Schröder, Michael, 2002. "The Prospects of Capital Markets in Central and Eastern Europe," ZEW Discussion Papers 02-57, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  2. Gaston R. Gelos & Ratna Sahay, 2000. "Financial Market Spillovers in Transition Economies," IMF Working Papers 00/71, International Monetary Fund.
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  3. James MacKinnon, 1990. "Critical Values for Cointegration Tests," University of California at San Diego, Economics Working Paper Series 90-4, Department of Economics, UC San Diego. [Downloadable!]
  4. David A. Dickey & Dennis W. Jansen & Daniel L. Thornton, 1991. "A primer on cointegration with an application to money and income," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 58-78. [Downloadable!]
  5. Dekker, Arie & Sen, Kunal & Young, Martin R., 2001. "Equity market linkages in the Asia Pacific region: A comparison of the orthogonalised and generalised VAR approaches," Global Finance Journal, Elsevier, vol. 12(1), pages 1-33. [Downloadable!] (restricted)
  6. Corhay, Albert & Rad, Alireza Tourani & Urbain, Jean-Pierre, 1995. "Long Run Behaviour of Pacific-Basin Stock Prices," Applied Financial Economics, Taylor and Francis Journals, vol. 5(1), pages 11-18, February. [Downloadable!] (restricted)
  7. Lutkepohl, Helmut & Reimers, Hans-Eggert, 1992. "Impulse response analysis of cointegrated systems," Journal of Economic Dynamics and Control, Elsevier, vol. 16(1), pages 53-78, January. [Downloadable!] (restricted)
  8. Serletis, Apostolos & King, Martin, 1997. "Common Stochastic Trends and Convergence of European Union Stock Markets," The Manchester School of Economic & Social Studies, Blackwell Publishing, vol. 65(1), pages 44-57, January.
  9. Taylor, Mark P & Tonks, Ian, 1989. "The Internationalisation of Stock Markets and the Abolition of U.K. Exchange Control," The Review of Economics and Statistics, MIT Press, vol. 71(2), pages 332-36, May. [Downloadable!] (restricted)
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Cited by:
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  1. Caiado, Jorge & Crato, Nuno, 2007. "A GARCH-based method for clustering of financial time series: International stock markets evidence," MPRA Paper 2074, University Library of Munich, Germany. [Downloadable!]
  2. Balázs Égert & Evžen Kocenda, 2007. "Time-Varying Comovements in Developed and Emerging European Stock Markets: Evidence from Intraday Data," William Davidson Institute Working Papers Series wp861, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  3. Li Yang & Francis Tapon & Yiguo Sun, 2006. "International correlations across stock markets and industries: trends and patterns 1988--2002," Applied Financial Economics, Taylor and Francis Journals, vol. 16(16), pages 1171-1183, November. [Downloadable!] (restricted)
  4. Chancharat,Surachai & Valadkhani, Abbas, 2007. "An Empirical Analysis of the Thai and Major International Stock Markets," Economics Working Papers wp07-13, School of Economics, University of Wollongong, NSW, Australia. [Downloadable!]
  5. Aktham Maghyereh & Hiatham Al-Zuobi, 2005. "Free trade agreements and equity market integration: the case of the US and Jordan," Applied Financial Economics, Taylor and Francis Journals, vol. 15(14), pages 995-1005, October. [Downloadable!] (restricted)
  6. Caiado, Jorge & Crato, Nuno & Peña, Daniel, 2007. "Is there an identity within international stock market volatilities?," MPRA Paper 2069, University Library of Munich, Germany. [Downloadable!]
  7. Caiado, Jorge & Crato, Nuno, 2008. "Identifying the evolution of stock markets stochastic structure after the euro," MPRA Paper 6609, University Library of Munich, Germany. [Downloadable!]
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