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Czech parallel capital markets: discrepancies and inefficiencies

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  • Jan Hanousek
  • Libor Nemecek

Abstract

This study concentrates on interactions, price convergence and co-movements among the organized (and parallel) markets in the Czech Republic. Significant and lasting price differences between the individual trading channels available to the investor are documented and they are attributed to the (inefficient) institutional structure of the Czech capital markets as these characteristics are not sensitive to the firms' characteristics. The central markets of the Prague Stock Exchange (PSE) and the RMS (over-the-counter system) represent the two most closely linked market channels. The interrelations between these markets are studied to identify the leaders and followers in the information transmission process. The analysis shows the leading position in actively traded stocks to be held by the PSE main market, but RMS dominates in segments with lower liquidity. The analysis of the intramarket relations also confirms that liquid segments play a leading role in both the PSE and RMS. Given the unpleasant evolution of the Czech capital markets and contrary to the theory, these links actually weaken over time as a smaller fraction of total trade is being transacted on these price-forming markets. Thus, we conclude that the PSE and the RMS do not behave as a fully integrated and efficient market. Major institutional changes are identified as the only mitigating force which has led to the deteriorating position and reputation of the Czech capital markets and the Prague Stock Exchange in particular.

Suggested Citation

  • Jan Hanousek & Libor Nemecek, 2001. "Czech parallel capital markets: discrepancies and inefficiencies," Applied Financial Economics, Taylor & Francis Journals, vol. 11(1), pages 45-55.
    • Handle: RePEc:taf:apfiec:v:11:y:2001:i:1:p:45-55
    DOI: 10.1080/09603100150210255
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    References listed on IDEAS

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    1. Jan Hanousek & Libor Nemecek, 2002. "Mispricing and lasting arbitrage between parallel markets in the Czech Republic," The European Journal of Finance, Taylor & Francis Journals, vol. 8(1), pages 46-69.
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    Cited by:

    1. Evzen Kocenda & Jan Hanousek, 2012. "Firm break-up and performance," Economics of Governance, Springer, vol. 13(2), pages 121-143, June.
    2. Jan Hanousek & Libor Nemecek, 2002. "Mispricing and lasting arbitrage between parallel markets in the Czech Republic," The European Journal of Finance, Taylor & Francis Journals, vol. 8(1), pages 46-69.
    3. Štěpán Chrz & Karel Janda & Ladislav Krištoufek, 2014. "Modelování provázanosti trhů potravin, biopaliv a fosilních paliv [Modeling Interconnections within Food, Biofuel, and Fossil Fuel Markets]," Politická ekonomie, Prague University of Economics and Business, vol. 2014(1), pages 117-140.
    4. Evžen Kočenda & Jan Hanousek, 2011. "Vliv rozdělení českých podniků na ziskovost a produktivitu [Effect of the Czech Firms Break-Up on their Profitability and Productivity]," Politická ekonomie, Prague University of Economics and Business, vol. 2011(5), pages 579-598.

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