Revisiting the Dynamics of CEE Capital Markets

This paper examines the links between capital markets from European Union, with a primary focus on the dynamics between stock markets from Central and Eastern Europe. The sample includes a pre-pandemic period (January 2016 – December 2019) and a COVID-19 pandemic period (January 2020 – December 2023). We employ two nonparametric correlation coefficients, namely Spearman’s rank correlation coefficient and Kendall’s tau rank correlation coefficient over the two sub-periods. To gain a better understanding of the evolving relationships, we employ a rolling window Spearman correlation over the entire sample. Second, we use a nonparametric, nonlinear causality test to explore the cause–effect relationships between stock markets from Central and Eastern Europe. Our main findings reveal a moderate correlation between capital markets from Central and Eastern Europe. Furthermore, most of these correlations have increased during the outbreak of the COVID-19 pandemic and the Russian invasion in Ukraine. Moreover, Central and Eastern European stock markets exhibit stronger connections to developed capital markets from European Union. Our findings provide a better understanding of the dynamics of selected European capital markets offering valuable insight for investors due to their implications in the diversification properties of international portfolios. Our results are also important for policymakers and regulators.