European Union enlargement and equity markets in accession countries
AbstractThe announcement of European Union enlargement coincided with a dramatic rise in stock prices in accession countries. This paper investigates the hypothesis that the rise in stock prices was a result of the repricing of systematic risk due to the integration of accession countries into the world market. We find that firm-level stock price changes are positively related to the difference between a firm’s local and world market betas. This result is robust to controlling for changes in expected earnings, country effects and other controls, although the magnitude of the effect is not very large. The differences between local and world betas explain nearly 22% of the stock price increase. JEL Classification: F36, G15, G12
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Date of creation: Nov 2005
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Other versions of this item:
- Dvorak, Tomas & Podpiera, Richard, 2006. "European Union enlargement and equity markets in accession countries," Emerging Markets Review, Elsevier, vol. 7(2), pages 129-146, June.
- Richard Podpiera & TomÃ¡s DvorÃ¡k, 2005. "European Union Enlargement and Equity Markets in Accession Countries," IMF Working Papers 05/182, International Monetary Fund.
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-11-19 (All new papers)
- NEP-EEC-2005-11-19 (European Economics)
- NEP-FIN-2005-11-19 (Finance)
- NEP-FMK-2005-11-19 (Financial Markets)
- NEP-TRA-2005-11-19 (Transition Economics)
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