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Progress Towards to Equity Market Integration in Eastern Europe

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  • Aslanidis, Nektarios
  • Dungey, Mardi
  • Savva, Christos S.

Abstract

The advent of the European Union has decreased the diversification benefits available from country based equity market indices in the region. This paper measures the increase in stock integration between the three largest new EU members (Hungary, the Czech Republic and Poland who joined in May 2004) and the Euro-zone. A potentially gradual transition in correlations is accommodated in a single VAR model by embedding smooth transition conditional correlation models with fat tails, spillovers, volatility clustering, and asymmetric volatility effects. At the country market index level all three Eastern European markets show a considerable increase in correlations in 2006. At the industry level the dates and transition periods for the correlations differ, and the correlations are lower although also increasing. The results show that sectoral indices in Eastern European markets may provide larger diversification opportunities than the aggregate market. JEL classifications: C32; C51; F36; G15 Keywords: Multivariate GARCH; Smooth Transition Conditional Correlation; Stock Return Comovement; Sectoral correlations; New EU Members

Suggested Citation

  • Aslanidis, Nektarios & Dungey, Mardi & Savva, Christos S., 2008. "Progress Towards to Equity Market Integration in Eastern Europe," Working Papers 2072/13265, Universitat Rovira i Virgili, Department of Economics.
    • Handle: RePEc:urv:wpaper:2072/13265
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    More about this item

    Keywords

    Anàlisi de sèries temporals; Models economètrics; Integració econòmica; Integració europea; Finances internacionals; Ampliació de la Unió Europea; Hongria; República Txeca; Polònia; 339 - Comerç. Relacions econòmiques internacionals. Economia mundial. Màrqueting;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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