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Long And Short-Run Linkages In Cee Stock Markets: Implications For Portfolio Diversification And Stock Market Integration

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  • Manolis Syllignakis

    ()

  • Georgios Kouretas

    ()

Abstract

This paper examines the short- and long-term relationships between seven Central Eastern European (CEE) stock markets and two developed stock markets, namely the German market and the US market. Application of the Gonzalo and Granger (1995) methodology indicates that the examined stock markets are partially integrated, while there is also evidence that the five stock markets in the central Europe (Czech Republic, Hungary, Poland, Slovenia and Slovakia) together with the German and the US stock markets have a significant common permanent component, which drives this system of stock exchanges in the long run. Contrary, the Estonian and Romania markets are segmented. A DCC model indicates that the short – term interdependencies between the CEE stock markets and the developed stock markets have strengthened during the Asian and Russian crises but since then (except for the Czech Republic, Hungary, Poland) they returned almost to their initial (relatively low) levels. Moreover, significantly increased volatility is observed during the Russian crisis period for all the markets under enquiry.

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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number wp832.

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Length: pages
Date of creation: 01 Jul 2006
Date of revision:
Handle: RePEc:wdi:papers:2006-832

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Keywords: Central Eastern European equity markets; Market Integration; Common trends; DCC; SWARCH-L.;

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References

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  1. Schotman, Peter C & Zalewska, Ania, 2005. "Non-synchronous Trading and Testing for Market Integration in Central European Emerging Markets," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5352, C.E.P.R. Discussion Papers.
  2. Gonzalo, J. & Granger, C., 1992. "Estimation of Common Long-Memory Components in Cointegrated Systems," Papers, Boston University - Department of Economics 4, Boston University - Department of Economics.
  3. Kristin J. Forbes & Roberto Rigobon, 2002. "No Contagion, Only Interdependence: Measuring Stock Market Comovements," Journal of Finance, American Finance Association, American Finance Association, vol. 57(5), pages 2223-2261, October.
  4. Rockinger, Michael & Urga, Giovanni, 2001. "A Time-Varying Parameter Model to Test for Predictability and Integration in the Stock Markets of Transition Economies," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 19(1), pages 73-84, January.
  5. Dimitris Georgoutsos & George Kouretas, 2001. "Common Stochastic Trends In International Stock Markets: Testing In An Integrated Framework," Working Papers, University of Crete, Department of Economics 0104, University of Crete, Department of Economics.
  6. Hamilton, James D. & Susmel, Raul, 1994. "Autoregressive conditional heteroskedasticity and changes in regime," Journal of Econometrics, Elsevier, Elsevier, vol. 64(1-2), pages 307-333.
  7. Robert F. Engle & Kevin Sheppard, 2001. "Theoretical and Empirical properties of Dynamic Conditional Correlation Multivariate GARCH," NBER Working Papers 8554, National Bureau of Economic Research, Inc.
  8. Balazs Egert & Evzen Kocenda, 2005. "Contagion Across and Integration of Central and Eastern European Stock Markets: Evidence from Intraday Data," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan wp798, William Davidson Institute at the University of Michigan.
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Cited by:
  1. Anita Radman Peša & Mejra Festić, 2012. "Testing the “EU Announcement Effect” on Stock Market Indices and Macroeconomic Variables in Croatia Between 2000 and 2010," Prague Economic Papers, University of Economics, Prague, University of Economics, Prague, vol. 2012(4), pages 450-469.
  2. Ian Babetskii & Lubos Komarek & Zlatuse Komarkova, 2007. "Financial Integration of Stock Markets among New EU Member States and the Euro Area," Working Papers, Czech National Bank, Research Department 2007/7, Czech National Bank, Research Department.
  3. Alenka Kavkler & Mejra Festić, 2011. "Modelling Stock Exchange Index Returns in Different GDP Growth Regimes," Prague Economic Papers, University of Economics, Prague, University of Economics, Prague, vol. 2011(1), pages 3-22.
  4. Silvo Dajcman, 2012. "The Dynamics of Return Comovement and Spillovers Between the Czech and European Stock Markets in the Period 1997–2010," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, Charles University Prague, Faculty of Social Sciences, vol. 62(4), pages 368-390, August.
  5. repec:prg:jnlpep:v:2013:y:2013:i:4:id:434:p:450-469 is not listed on IDEAS
  6. Julia Stefanova, 2013. "Strategic Priorities to the Bulgarian Capital Market for Strengthening the Integration to EU," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 45-73.
  7. Ioan TRENCA & Eva DEZSI, 2010. "The integration of capital markets: correlation analysis," Finante - provocarile viitorului (Finance - Challenges of the Future), University of Craiova, Faculty of Economics and Business Administration, vol. 1(12), pages 44-53, December.

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