Are Stock Market Returns in the CEE Countries and in the Eurozone, Russia, and the United States Asymmetric?

This paper investigates the (a)symmetry between stock market returns in Central and Eastern European (CEE) countries (Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, and Poland) on the one hand, and in the eurozone, Russia, and the United States on the other. Correlation asymmetry is investigated by applying a dynamic version of the test developed by Hong et al. (2007). The results show that the correlation when returns fall simultaneously in two stock markets (lower-tail correlation) normally exceeds the correlation when returns increase simultaneously (upper-tail correlation). The CEE stock markets that are the most correlated (as measured by Pearson's correlation) with the stock markets of the eurozone, Russia, and the United States exhibit a higher degree of symmetry between upper- and lower-tail correlation than do CEE markets that are less strongly correlated with these other markets. The dynamic version of Hong et al.'s test revealed that there were more periods of asymmetric correlation for the stock markets of the Baltic region than for other stock markets in CEE countries.