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International Portfolio Diversification: Evidence from European Emerging Markets

  • Nikolaos L. Hourvouliades
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    This paper examines the short-term and long-term relationships among eight European stock markets from 2000 to 2008. Three of these markets are considered mature: Euronext, Germany and Greece. The remaining five are considered emerging: Bulgaria, Cyprus, Romania, Slovenia and Turkey. We apply exhaustive statistical and econometric tests together with long-run cointegration and correlation analyses that yield mixed results concerning the markets’ relationships. We switch to a dynamic model of different interval moving averages, comparing the outcomes and revealing the individual characteristics of each market. The results are robust to sensitivity analysis based on partitioning the sample into multiple sub-periods and on translating indices to the Euro, the common currency for practically all of the markets. In addition, the Euronext and Germany stock exchanges serve as benchmarks and each equity market is examined from their point of view. Evidence shows that equity integration is existent, making international portfolio diversification less effective.

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    File URL: http://www.ersj.eu/repec/ers/papers/09_4_p5.pdf
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    Article provided by European Research Studies Journal in its journal European Research Studies Journal.

    Volume (Year): XII (2009)
    Issue (Month): 4 ()
    Pages: 55-78

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    Handle: RePEc:ers:journl:v:xii:y:2009:i:4:p:55-78
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    1. Gikas A. Hardouvelis & Dimitrios Malliaropulos & Richard Priestley, 2006. "EMU and European Stock Market Integration," The Journal of Business, University of Chicago Press, vol. 79(1), pages 365-392, January.
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    3. Kearney, Colm & Lucey, Brian M., 2004. "International equity market integration: Theory, evidence and implications," International Review of Financial Analysis, Elsevier, vol. 13(5), pages 571-583.
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    5. Laura E. Kodres & Matthew Pritsker, 2002. "A Rational Expectations Model of Financial Contagion," Journal of Finance, American Finance Association, vol. 57(2), pages 769-799, 04.
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    7. Cal Muckley & Raj Aggarwal & Brian Lucey, 2005. "Dynamics of Equity Markets Integration in Europe: Evidence of Change with Events and over Time," Money Macro and Finance (MMF) Research Group Conference 2005 48, Money Macro and Finance Research Group.
    8. Flavin, Thomas & Lucey, Brian & Voronkova, Svitlana, 2006. "Real and financial aspects of financial integration," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(3), pages 315-316, July.
    9. Theodore Syriopoulos, 2004. "International portfolio diversification to Central European stock markets," Applied Financial Economics, Taylor & Francis Journals, vol. 14(17), pages 1253-1268.
    10. Robert Johnson & Luc Soenen, 2002. "Asian Economic Integration and Stock Market Comovement," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 25(1), pages 141-157.
    11. Caporale, Guglielmo Maria & Cipollini, Andrea & Spagnolo, Nicola, 2005. "Testing for contagion: a conditional correlation analysis," Journal of Empirical Finance, Elsevier, vol. 12(3), pages 476-489, June.
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