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Integration in Central European capital markets in the context of the global COVID-19 pandemic

Author

Listed:
  • Pedro Pardal

    (Polytechnic Institute of Setubal, Portugal)

  • Rui Dias

    (Polytechnic Institute of Setubal, Portugal)

  • Petr Suler

    (Institute of Technology and Business, Czech Republic)

  • Nuno Teixeira

    (Polytechnic Institute of Setubal, Portugal)

  • Tomas Krulicky

    (Polytechnic Institute of Setubal, Portugal)

Abstract

Research background: Covid-19 pandemic had a strong impact on the economy and capital market. In times of crisis, it is important for investors to be able to diversify their investment portfolio in order to mitigate risk. However, the growing trend towards capital market integration may make it ineffective. Research on financial integration, during the Covid-19 period, has started to develop, mainly in major global capital markets. It is, therefore, important to extend this research to other capital markets. The purpose of the article: This contribution aims to analyze financial integration in the stock indexes of the capital markets of Austria (ATX), Slovenia (SBITOP), Hungary (BUDAPEST SE), Lithuania (OMX VILNIUS), Poland (WIG), the Czech Republic (PX PRAGUE), Russia (MOEX) and Serbia (BELEX 15), in the context of the global pandemic (COVID-19). Methods: To measure the unit roots in the time series, we used ADF, PP, and KPSS tests, and Clemente et al. (1998) test to detect structural breaks. To ana-lyse financial integration, we applied the Gregory and Hansen integration test, and to validate the robustness of results, we use the impulse-response function (IRF) methodology, with Monte Carlo simulations, as they provide a dynamic analysis generated from the VAR model estimates. Findings & Value added: The results suggest very significant levels of integration, which decreases the chances of portfolio diversification in the long-term. Evidence shows 47 pairs of integrated stock market indexes (out of 56 possible). The stock indexes ATX, BUDAPESTE SE, BELEX 15 show financial integration with all other indexes. On the contrary, the index of OMX VILNIUS shows only 3 integrations. Results also show that most of the significant structural breaks occurred in March 2020. The analysis of the relationship between markets, in the short term, shows positive/negative co-movements, with statis-tical significance and with a persistence longer than one week.

Suggested Citation

  • Pedro Pardal & Rui Dias & Petr Suler & Nuno Teixeira & Tomas Krulicky, 2020. "Integration in Central European capital markets in the context of the global COVID-19 pandemic," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 15(4), pages 627-650, December.
    • Handle: RePEc:pes:ierequ:v:15:y:2020:i:4:p:627-650
    DOI: 10.24136/eq.2020.027
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    Cited by:

    1. Beata Bieszk-Stolorz & Iwona Markowicz, 2021. "Risk of Decline in Share Prices of Energy and Fuel Sector on the Warsaw Stock Exchange During the Two Waves of the COVID-19 Pandemic," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 977-996.
    2. Dorota Zebrowska-Suchodolska & Andrzej Karpio & Krzysztof Kompa, 2021. "COVID-19 Pandemic: Stock Markets Situation in European Ex-Communist Countries," European Research Studies Journal, European Research Studies Journal, vol. 0(3), pages 1106-1128.
    3. Beata Bieszk-Stolorz & Iwona Markowicz, 2022. "Changes in Share Prices of Macrosector Companies on the Warsaw Stock Exchange as a Reaction to the COVID-19 Pandemic," Sustainability, MDPI, vol. 14(16), pages 1-18, August.
    4. Greta Keliuotyte-Staniuleniene & Julius Kviklis, 2021. "Assessing the reaction of the Baltic stock market to the spread of the COVID-19 pandemic," Technium Social Sciences Journal, Technium Science, vol. 25(1), pages 260-272, November.
    5. Patel, Ritesh & Goodell, John W. & Oriani, Marco Ercole & Paltrinieri, Andrea & Yarovaya, Larisa, 2022. "A bibliometric review of financial market integration literature," International Review of Financial Analysis, Elsevier, vol. 80(C).
    6. Kedžo Margareta Gardijan, 2022. "COVID-19 pandemic impact on investment prospective in selected CEE stock markets: A stochastic dominance approach," Croatian Review of Economic, Business and Social Statistics, Sciendo, vol. 8(2), pages 28-42, December.
    7. Beata Bieszk-Stolorz & Iwona Markowicz, 2021. "Decline in Share Prices of Energy and Fuel Companies on the Warsaw Stock Exchange as a Reaction to the COVID-19 Pandemic," Energies, MDPI, vol. 14(17), pages 1-17, August.
    8. Marcin Bogdański, 2021. "Employment Diversification as a Determinant of Economic Resilience and Sustainability in Provincial Cities," Sustainability, MDPI, vol. 13(9), pages 1-13, April.
    9. Magdalena Olczyk & Marta Ewa Kuc-Czarnecka, 2021. "Determinants of COVID-19 Impact on the Private Sector: A Multi-Country Analysis Based on Survey Data," Energies, MDPI, vol. 14(14), pages 1-17, July.
    10. repec:thr:techub:10025:y:2021:i:1:p:260-272 is not listed on IDEAS
    11. Joanna Landmesser, 2021. "The use of the dynamic time warping (DTW) method to describe the COVID-19 dynamics in Poland," Oeconomia Copernicana, Institute of Economic Research, vol. 12(3), pages 539-556, September.
    12. Pollák František & Vavrek Roman & Váchal Jan & Markovič Peter & Konečný Michal, 2021. "Analysis of Digital Customer Communities in terms of their interactions during the first wave of the COVID-19 pandemic," Management & Marketing, Sciendo, vol. 16(2), pages 134-151, June.
    13. Katarina Valaskova & Tomas Kliestik & Dominika Gajdosikova, 2021. "Distinctive determinants of financial indebtedness: evidence from Slovak and Czech enterprises," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 16(3), pages 639-659, September.
    14. Lolea Iulian Cornel & Stamule Simona, 2021. "Trading using Hidden Markov Models during COVID-19 turbulences," Management & Marketing, Sciendo, vol. 16(4), pages 334-351, December.
    15. Węgrzyn Grażyna, 2023. "Influence of the COVID-19 pandemic on the transition of people on the Polish labor market – hidden threats," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 59(2), pages 168-179, June.
    16. Andrej Privara, 2022. "Economic growth and labour market in the European Union: lessons from COVID-19," Oeconomia Copernicana, Institute of Economic Research, vol. 13(2), pages 355-377, June.
    17. Andriy Stavytskyy & Ganna Kharlamova & Olena Komendant & Jarosław Andrzejczak & Joanna Nakonieczny, 2021. "Methodology for Calculating the Energy Security Index of the State: Taking into Account Modern Megatrends," Energies, MDPI, vol. 14(12), pages 1-19, June.
    18. Mimica R. Milošević & Miloš M. Nikolić & Dušan M. Milošević & Violeta Dimić, 2022. "Managing Resources Based on Influential Indicators for Sustainable Economic Development: A Case Study in Serbia," Sustainability, MDPI, vol. 14(8), pages 1-20, April.

    More about this item

    Keywords

    COVID-19; capital market; financial integration; portfolio diversification; financial crisis;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F30 - International Economics - - International Finance - - - General

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