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Did Baltic stock markets offer diversification benefits during the recent financial turmoil? Novel evidence from a nonparametric causality-in-quantiles test

Author

Listed:
  • Vassilios Babalos

    () (Technological Educational Institute of Peloponnese
    University of Piraeus)

  • Mehmet Balcilar

    (Eastern Mediterranean University
    University of Pretoria
    IPAG Business School)

  • Tumisang B. Loate

    (University of Pretoria)

  • Shingie Chisoro

    (University of Pretoria)

Abstract

Abstract Motivated by financial liberalization investors seek for new investment opportunities through international portfolio diversification. To this end we explore any asymmetric causal relationship between developed European stock markets (Germany, France and UK) and emerging Baltic markets namely; Estonia, Latvia and Lithuania. Our analysis focuses on the period before and after countries’ EU accession and pre- and post the global financial crisis. For this purpose, both the standard parametric test for causality and a novel nonparametric test for causality-in-quantiles are employed. The results of both the parametric and nonparametric Granger causality test support a causal relationship in mean that runs from all of the major markets to the Baltic markets across both samples. The results imply the existence of significant nonlinear return and volatility spillover from European markets to Baltic markets. Policy implications for international investors are also discussed.

Suggested Citation

  • Vassilios Babalos & Mehmet Balcilar & Tumisang B. Loate & Shingie Chisoro, 2018. "Did Baltic stock markets offer diversification benefits during the recent financial turmoil? Novel evidence from a nonparametric causality-in-quantiles test," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 45(1), pages 29-47, February.
  • Handle: RePEc:kap:empiri:v:45:y:2018:i:1:d:10.1007_s10663-016-9344-4
    DOI: 10.1007/s10663-016-9344-4
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    References listed on IDEAS

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    Cited by:

    1. Gil-Alana, Luis A. & Gupta, Rangan & Shittu, Olanrewaju I. & Yaya, OlaOluwa S., 2018. "Market efficiency of Baltic stock markets: A fractional integration approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 511(C), pages 251-262.

    More about this item

    Keywords

    Baltic stock markets; Non parametric; Quantile causality; Diversification benefits; Global financial crisis;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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