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Interdependencies of Markets in Southeastern Europe and Buyback of Shares on Shallow Capital Markets: The Application of Cointegration and Causality Tests

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  • Đorđe Đukić

    () (Faculty of Economics, University of Belgrade, Serbia)

  • Mališa Đukić

    () (Belgrade Banking Academy, Serbia)

Abstract

Due to the global financial crisis the stock exchange indices of Southeastern European (SEE) countries are stagnating or are slowly recovering. The issuers of securities, namely banks that achieve good business results, may be in a dilemma whether to buy back their shares so as to slow down the share price decrease and manage capital. In this paper, the cointegration tests, Granger causality test and equilibrium error correction model were applied to examine: 1) interdependencies of stock exchange indexes in SEE countries (Slovenia, Croatia, Serbia, Montenegro, Republic of Srpska, Macedonia - FYROM and Bulgaria); 2) interdependencies of most actively traded shares in Serbia and the representative index. The main conclusion is that it is not possible to successfully use the share buyback to stop or reduce the share price fall on a shallow capital market of SEE countries. This is opposite to what successful banks can do on deep capital markets. In interpreting quantitative results it is necessary to be cautious because of a small number of banks from SEE which were able to use share repurchase.

Suggested Citation

  • Đorđe Đukić & Mališa Đukić, 2015. "Interdependencies of Markets in Southeastern Europe and Buyback of Shares on Shallow Capital Markets: The Application of Cointegration and Causality Tests," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 62(4), pages 469-491, September.
  • Handle: RePEc:voj:journl:v:62:y:2015:i:4:p:469-491
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Capital markets; Share buyback; Southeastern Europe; Cointegration; Causality tests;

    JEL classification:

    • C19 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Other
    • 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
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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