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Driving Factors of Efficiency of CEE Capital Markets

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  • Miriam Ratkovicova
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    Abstract

    In this paper I investigated the driving factors of integration of emerging capital markets into the global market. First, I analyzed the level of integration/segmentation of selected Central and Eastern European (CEE) countries using the methods of correlation analysis, cointegration, and CAPM. Second, I searched for the reason(s) of substantial variance of the level of integration/segmentation among the countries and throughout the time. I compared two different factors, which both might cause such differences, analyzing the problem from both static and dynamic point of views. I tried to answer the question, whether there is a causal relationship between the fluctuation of the level of integration/segmentation of a particular market within a pre-defined time frame and its economical (and political) performance. Or, alternatively, whether the decisive factor is more static than dynamic: the market size predetermines the level of integration that the country is able to achieve. This paper was initiated by confronting results of three previous studies. Three students of Central European University have analyzed the subject of CEE capital market integration using different methodologies and timeframes and have arrived at different conclusions. Maria Haroutounian (1997) concludes her MA Thesis "Risk Exposure of Transition Equity Markets and their Integration into World Capital Markets" with the statement that all emerging markets (as represented by the Visegrad group) are becoming more and more integrated into world capital portfolio. On the other hand, Tigran Minasian (1998) widened his sample to several CEE countries and compared them on the market-size basis. The final result of his study was that large emerging countries are becoming more integrated into the global market, while small markets are becoming more segmented. The last research, conducted by Miriam Ratkovicová (1998) analyzed the time fluctuation of the level of integration of emerging capital markets and was concluded with the result that the level of a market's integration/segmentation is directly dependent on the country's economic performance. These papers analyzed other aspects of equity markets as well, which are not going to be dealt with here. Conclusively, the aim of this paper was to analyze the results of the above mentioned papers, to update their models and reach a consensus in answering the question of where the equity markets of emerging Europe are going.

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    Bibliographic Info

    Paper provided by CASE-Center for Social and Economic Research in its series CASE-CEU Working Papers with number 0035.

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    Length: 81 pages
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    Handle: RePEc:sec:ceuwps:0035

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    Keywords: capital markets; Central Europe; Eastern Europe;

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    1. Bekaert, Geert & Harvey, Campbell R, 1995. " Time-Varying World Market Integration," Journal of Finance, American Finance Association, vol. 50(2), pages 403-44, June.
    2. Banz, Rolf W., 1981. "The relationship between return and market value of common stocks," Journal of Financial Economics, Elsevier, vol. 9(1), pages 3-18, March.
    3. Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
    4. Hancock, D. G., 1989. "Fiscal policy, monetary policy and the efficiency of the stock market," Economics Letters, Elsevier, vol. 31(1), pages 65-69.
    5. Rozeff, Michael S. & Kinney, William Jr., 1976. "Capital market seasonality: The case of stock returns," Journal of Financial Economics, Elsevier, vol. 3(4), pages 379-402, October.
    6. Geert Bekaert & Campbell R. Harvey, 1997. "Foreign Speculators and Emerging Equity Markets," William Davidson Institute Working Papers Series 79, William Davidson Institute at the University of Michigan.
    7. Claessens, Stijn, 1995. "The Emergence of Equity Investment in Developing Countries: Overview," World Bank Economic Review, World Bank Group, vol. 9(1), pages 1-17, January.
    8. Fama, Eugene F, 1991. " Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-617, December.
    9. Bekaert, Geert, 1995. "Market Integration and Investment Barriers in Emerging Equity Markets," World Bank Economic Review, World Bank Group, vol. 9(1), pages 75-107, January.
    10. Jan Hanousek and Randall K. Filer & Jan Hanousek and Randall K. Filer, 1997. "The Relationship Between Economic Factors and Equity Markets in Central Europe," William Davidson Institute Working Papers Series 78, William Davidson Institute at the University of Michigan.
    11. Atje, Raymond & Jovanovic, Boyan, 1993. "Stock markets and development," European Economic Review, Elsevier, vol. 37(2-3), pages 632-640, April.
    12. Bansal, Ravi & Hsieh, David A & Viswanathan, S, 1993. " A New Approach to International Arbitrage Pricing," Journal of Finance, American Finance Association, vol. 48(5), pages 1719-47, December.
    13. Flavin, Marjorie A, 1983. "Excess Volatility in the Financial Markets: A Reassessment of the Empirical Evidence," Journal of Political Economy, University of Chicago Press, vol. 91(6), pages 929-56, December.
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