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European Union enlargement and equity markets in accession countries

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  • Dvorak, Tomas
  • Podpiera, Richard

Abstract

The announcement of European Union enlargement coincided with a dramatic rise in stock prices in accession countries. This paper investigates the hypothesis that the rise in stock prices was a result of the repricing of systematic risk due to the integration of accession countries into the world market. We find that firm-level stock price changes are positively related to the difference between a firm's local and world market betas. This result is robust to controlling for changes in expected earnings, country effects and other controls, although the magnitude of the effect is not very large. The differences between local and world betas explain nearly 22% of the stock price increase. JEL Classification: F36, G15, G12

Suggested Citation

  • Dvorak, Tomas & Podpiera, Richard, 2005. "European Union enlargement and equity markets in accession countries," Working Paper Series 552, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:2005552
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp552.pdf
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    References listed on IDEAS

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    Cited by:

    1. Peter Blair Henry, 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation," Journal of Economic Literature, American Economic Association, vol. 45(4), pages 887-935, December.
    2. Yunyong Thaicharoen & Sra Chuenchoksan & Ashvin Ahuja, 2007. "Big elephants in small ponds: Risk absorption, risk diversification and management of capital flows," Working Papers 2007-02, Monetary Policy Group, Bank of Thailand.
    3. Mr. Leslie Lipschitz & Mr. Alex Mourmouras & Mr. Timothy D. Lane, 2002. "Capital Flows to Transition Economies: Master or Servant?," IMF Working Papers 2002/011, International Monetary Fund.

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    More about this item

    Keywords

    asset pricing; EU enlargement; international financial integration;
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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