Regional integration of stock markets in Southeast Europe
AbstractThis article investigates the dynamics of regional financial integration and its determinants in an international setting. We test a conditional version of the international capital asset pricing model (ICAPM) accounting for the deviations from purchasing power parity (PPP) as well as temporal variations in both regional and local sources of risk. Using data from four major countries of the Southeast Europe (Czech Republic, Greece, Poland, and Romania), our results support the validity of ICAPM and indicate that the risk is internationally priced. Further- more, we show that changes in the degree of regional stock market integration are explained principally by trade openness and the level of stock market development whatever the measure of currency risk. Finally, as expected, the degree of stock market integration varies considerably over time and from one market to another. As intense market integration induces both benefits and risks, our findings should have significant implications for eco- nomic policies and market regulations in emerging, frontier-emerging and transition countries, particularly for countries from the same region.
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Bibliographic InfoPaper provided by Department of Research, Ipag Business School in its series Working Papers with number 22.
Length: 19 pages
Date of creation: 25 Sep 2013
Date of revision:
ICAPM; market integration; exchange rate risk;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- F31 - International Economics - - International Finance - - - Foreign Exchange
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-10-05 (All new papers)
- NEP-EUR-2013-10-05 (Microeconomic European Issues)
- NEP-FMK-2013-10-05 (Financial Markets)
- NEP-TRA-2013-10-05 (Transition Economics)
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