Global Integration of Central and Eastern European Financial Markets: The Role of Economic Sentiments
AbstractThis paper examines the importance of different economic sentiments, e.g. consumer moods, for the Central and Eastern European countries (CEECs) during the transition process. We first analyze the importance of economic confidence with respect to the CEEC's financial markets. Since the integration of formerly strongly regulated markets into global markets can also lead to an increase of the dependence of the CEECs' domestic market performance from global sentiments, we also investigate the relationship between global economic sentiments and domestic income and share prices. Finally, we test whether the impact of global sentiments and stock prices on domestic variables increases proportionally with the degree of integration. For these purposes, we apply a structural cointegrating VAR (CVAR) framework based upon a restricted autoregressive model which allows us to distinguish between the long-run and the short-run dynamics. For the long run we find evidence supporting relationships between sentiments, income and share prices in case of the Czech Republic. Our results for the short run suggest that economic sentiments in general are strongly influenced by share prices and income but also offer some predictive power with respect to the latter. What is more, global sentiments play an important role in particular for the CEECs' share prices and income. The significance of this link increases with economic integration.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 952.
Length: 36 p.
Date of creation: 2009
Date of revision:
Publication status: Published in: Review of International Economics 19 (2011), 1, 137-157
Cointegration; European integration; financial markets; restricted autoregressive model; sentiments;
Other versions of this item:
- Joscha Beckmann & Ansgar Belke & Michael Kühl, 2011. "Global Integration of Central and Eastern European Financial Markets—The Role of Economic Sentiments," Review of International Economics, Wiley Blackwell, vol. 19(1), pages 137-157, 02.
- Ansgar Belke & Joscha Beckmann & Michael Kühl, 2010. "Global Integration of Central and Eastern European Financial Markets – The Role of Economic Sentiments," Ruhr Economic Papers 0174, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- P2 - Economic Systems - - Socialist Systems and Transition Economies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-12-11 (All new papers)
- NEP-EEC-2009-12-11 (European Economics)
- NEP-MAC-2009-12-11 (Macroeconomics)
- NEP-TRA-2009-12-11 (Transition Economics)
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.:
- Acemoglu, Daron & Scott, Andrew, 1994.
"Consumer Confidence and Rational Expectations: Are Agents' Beliefs Consistent with the Theory?,"
Royal Economic Society, vol. 104(422), pages 1-19, January.
- Daron Acemoglu & Andrew Scott, 1993. "Consumer Confidence and Rational Expectations: Are Agents Beliefs Consistent with the Theory?," CEP Discussion Papers dp0119, Centre for Economic Performance, LSE.
- Sydney C. Ludvigson, 2004. "Consumer Confidence and Consumer Spending," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 29-50, Spring.
- Moritz Schularick & Thomas M. Steger, 2006.
"Does Financial Integration Spur Economic Growth? New Evidence from the First Era of Financial Globalization,"
CER-ETH Economics working paper series
06/46, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
- Moritz Schularick & Thomas Steger, 2006. "Does Financial Integration Spur EconomicGrowth? New Evidence from the First Era of Financial Globalization," CESifo Working Paper Series 1691, CESifo Group Munich.
- Bekaert, Geert & Hodrick, Robert J. & Zhang, Xiaoyan, 2008.
"International stock return comovements,"
Working Paper Series
0931, European Central Bank.
- Bekaert, Geert & Hodrick, Robert J. & Zhang, Xiaoyan, 2005. "International Stock Return Comovements," Working Papers 06-3, University of Pennsylvania, Wharton School, Weiss Center.
- Bekaert, Geert & Hodrick, Robert J & Zhang, Xiaoyan, 2006. "International Stock Return Comovements," CEPR Discussion Papers 5955, C.E.P.R. Discussion Papers.
- Geert Bekaert & Robert J. Hodrick & Xiaoyan Zhang, 2005. "International Stock Return Comovements," NBER Working Papers 11906, National Bureau of Economic Research, Inc.
- Malcolm Baker & Jeffrey Wurgler, 2007.
"Investor Sentiment in the Stock Market,"
Journal of Economic Perspectives,
American Economic Association, vol. 21(2), pages 129-152, Spring.
- John G. Matsusaka & Argia M. Sbordone, 1993.
"Consumer confidence and economic fluctuations,"
Working Paper Series, Macroeconomic Issues
93-13, Federal Reserve Bank of Chicago.
- Juselius, Katarina, 2006. "The Cointegrated VAR Model: Methodology and Applications," OUP Catalogue, Oxford University Press, number 9780199285679.
- Ali Al-Eyd & Ray Barrell & E. Philip Davis, 2009.
"Consumer Confidence Indices And Short-Term Forecasting Of Consumption,"
University of Manchester, vol. 77(1), pages 96-111, 01.
- Ali Al-Eyd & Ray Barrell & E. Philip Davis, 2008. "Consumer Confidence Indices And Short-Term Forecasting Of Consumption," NIESR Discussion Papers 304, National Institute of Economic and Social Research.
- Gregory W. Brown & Michael T. Cliff, 2005. "Investor Sentiment and Asset Valuation," The Journal of Business, University of Chicago Press, vol. 78(2), pages 405-440, March.
- Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
- W. Jos Jansen & Niek J. Nahuis, 2004.
"Which survey indicators are useful for monitoring consumption? Evidence from European countries,"
Journal of Forecasting,
John Wiley & Sons, Ltd., vol. 23(2), pages 89-98.
- Niek J. Nahuis & W. Jos Jansen, 2003. "Which Survey Indicators Are Useful for Monitoring Consumption? Evidence fron European Countries," Macroeconomics 0309013, EconWPA.
- Schmeling, Maik, 2009.
"Investor sentiment and stock returns: Some international evidence,"
Journal of Empirical Finance,
Elsevier, vol. 16(3), pages 394-408, June.
- Schmeling, Maik, 2008. "Investor sentiment and stock returns: Some international evidence," Diskussionspapiere der Wirtschaftswissenschaftlichen FakultÃ¤t der Leibniz UniversitÃ¤t Hannover dp-407, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
- Jason Bram & Sydney Ludvigson, 1998.
"Does consumer confidence forecast household expenditure? a sentiment index horse race,"
Economic Policy Review,
Federal Reserve Bank of New York, issue Jun, pages 59-78.
- Jason Bram & Sydney Ludvigson, 1997. "Does consumer confidence forecast household expenditure?: A sentiment index horse race," Research Paper 9708, Federal Reserve Bank of New York.
- Jansen, W. Jos & Nahuis, Niek J., 2003.
"The stock market and consumer confidence: European evidence,"
Elsevier, vol. 79(1), pages 89-98, April.
- W. Jos Jansen & Niek J. Nahuis, 2002. "The Stock Market and Consumer Confidence: European Evidence," MEB Series (discontinued) 2002-11, Netherlands Central Bank, Monetary and Economic Policy Department.
- repec:fip:fedfap:2004-09 is not listed on IDEAS
- G. Andrew Karolyi, 2004.
"Does International Financial Contagion Really Exist?,"
Journal of Applied Corporate Finance,
Morgan Stanley, vol. 16(2-3), pages 136-146.
- Karolyi, G Andrew, 2003. "Does International Financial Contagion Really Exist?," International Finance, Wiley Blackwell, vol. 6(2), pages 179-99, Summer.
- Mehrotra, Aaron & Rautava, Jouko, 2007.
"Do sentiment indicators help to assess and predict actual developments of the Chinese economy?,"
BOFIT Discussion Papers
11/2007, Bank of Finland, Institute for Economies in Transition.
- Aaron Mehrotra & Jouko Rautava, 2008. "Do sentiment indicators help to assess and predict actual developments of the Chinese economy?," Journal of Chinese Economic and Business Studies, Taylor and Francis Journals, vol. 6(3), pages 225-239.
- Pagano, Marco, 1993. "Financial markets and growth: An overview," European Economic Review, Elsevier, vol. 37(2-3), pages 613-622, April.
- Malcolm Baker & Jeffrey Wurgler, 2004.
"Investor Sentiment and the Cross-Section of Stock Returns,"
NBER Working Papers
10449, National Bureau of Economic Research, Inc.
- Malcolm Baker & Jeffrey Wurgler, 2006. "Investor Sentiment and the Cross-Section of Stock Returns," Journal of Finance, American Finance Association, vol. 61(4), pages 1645-1680, 08.
- Solnik, Bruno H., 1974. "An equilibrium model of the international capital market," Journal of Economic Theory, Elsevier, vol. 8(4), pages 500-524, August.
- Carrieri, Francesca & Errunza, Vihang & Hogan, Ked, 2007. "Characterizing World Market Integration through Time," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(04), pages 915-940, December.
- Mark Doms & Norman Morin, 2004. "Consumer sentiment, the economy, and the news media," Finance and Economics Discussion Series 2004-51, Board of Governors of the Federal Reserve System (U.S.).
- E. Philip Howrey, 2001. "The Predictive Power of the Index of Consumer Sentiment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(1), pages 175-216.
- Chelley-Steeley, Patricia L., 2005. "Modeling equity market integration using smooth transition analysis: A study of Eastern European stock markets," Journal of International Money and Finance, Elsevier, vol. 24(5), pages 818-831, September.
- Michael Lemmon & Evgenia Portniaguina, 2006. "Consumer Confidence and Asset Prices: Some Empirical Evidence," Review of Financial Studies, Society for Financial Studies, vol. 19(4), pages 1499-1529.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bibliothek).
If references are entirely missing, you can add them using this form.