Crisis Influences between Developed and Developing Capital Markets – The Case of Central and Eastern European Countries

The study aims to trace the influence between developed and developing capital markets in the context of the Efficient Market Hypothesis, taking into account the global financial crisis of 2008. In the study are used seven indices, two are representing developed markets – the U.S. DJIA, the German DAX and the rest five – developing markets of Central and Eastern Europe (CEE) – Bulgarian SOFIX, Czech PXI, Hungarian BUX, Romanian BET and Russian RTS. Using daily returns from 2005 to 2012, we investigate the volatility co-movement between the U.S. and the German indexes on one side and the CEE indices on another. In order to do so we apply EGARCH model to market data deviated in three periods – Pre-crisis, Crisis and Post-Crisis. In terms of correlation CEE indices can be divided in two – Czech, Hungarian, Romanian and Russian, showing a high correlation with the German index, and Bulgarian SOFIX demonstrating greater synchronicity with the U.S. index. This observation is confirmed for the three periods of study. Examining the volatility co-movement we can point out that the Hungarian, the Czech and the Russian indexes are clearly showing a leading role for their dynamics by the German index, for all studied periods. The Romanian index is showing a hesitating reaction to the deterministic influence of DJIA and DAX. For the Bulgarian index if there is a significant external influence, it is always by the DJIA. Regarding the reaction to the market impulses and information efficiency Bulgarian and Romanian indexes are clearly distinguished from the other studied CEE indexes. They showed disposition for faster and more sensitive reaction to negative market impulses, typical for the Crisis Period, in contrast to a moderate incorporation of the positive market impulses specific to the Pre-crisis Period.