Scientific Research Basis and Empirical Testing Results

A complementary set of four distinctive methodologies and techniques are used to empirically and comparably test the meaningfulness of the model relationship between the time-series and the cross-countries diverse data on capital markets and economic indicators. These techniques and methodologies are central to addressing the empirical questions involving static and dynamic attributes, homogenous and heterogeneous interdependencies. Amongst the selected techniques the panel PMG is employed to test dynamic time-series and cross-countries’ associating variables’ model relationship estimations. This estimation technique is particularly conducive to empirical research of SEE markets due to contemporaneous shared and distinct traits that are broadly and effectively included. Panel PMG has the capacity to fix the long-run coefficients and in that way capture better the shared SEE markets characteristics. Furthermore, panel PMG has the capacity that allows for the short-run coefficients heterogeneity and in that way reflecting varying degrees of single country’s state of economic structure and development. Panel PMG accounts for bias and static fixed effects from non-controlling factors. This is the preferable approach due to its relevance, completeness, and rigor in addressing the empirical research question that simultaneously involves static and dynamic attributes and homogeneous and heterogenous research interdependencies. In testing for the existence of the weak form of capital market efficiency in the selected SEE countries, the selected bi-variate and multi-variate statistical tests on the sample data yield results on statistically significant causal and cointegrating relationships between macroeconomic fundamentals and regulated stock exchanges’ prices. Such results prove the respective capital market inefficiency in respect to a priori inclusion of macroeconomic information in regulated stocks’ prices. In a closer outlook, a dynamic assessment of the relationships is provided, highlighting time validity and relationship strength and direction. The results of the statistical study discard the existence of linear relationships. Panel PMG results for the group data confirm inexistence of statistically significant short-run relationship of regulated stock exchanges’ prices with macroeconomic indicators. Results of the empirical research uncover new information that enables better prospects for understanding and utilizing such information by policy-makers, investors, academics, and others in support to the financial intermediation diversity and sustainability. The empirical research results, however, are also a reflection of the surrounding environment that illustrates the underpinning fundamental structure of the selected SEE capital markets’ inefficiency, low capitalization, low liquidity, lacking infrastructure, weak intermediation in market-making, and higher inherent costs and risks when compared to benchmarks in advanced countries’ capital markets. The identified weaknesses, in particular, the subpar investor protection and transparency in the SEE capital markets generate a lack of investors’ confidence.