Stock market integration between new EU member states and the Euro-zone
This paper measures the degree in stock market integration between five Eastern European countries and the Euro-zone. A potentially gradual transition in correlations is accommodated by smooth transition conditional correlation models. We find that the Czech, Slovenian and Polish markets have increased their correlation to the Euro-zone from 1997 to 2008. However, this is not a broad-based phenomenon across Eastern Europe. The results also show that the increase in correlations is not a reflection of a world-wide phenomenon of financial integration but is mainly driven by EU-related developments.
KeywordsMultivariate GARCH Smooth transition conditional correlation Stock return comovement New EU members
JEL ClassificationC32 C51 F36 G15
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