یکپارچه سازی بین المللی بازار سهام: مقایسه اروپا جنوب شرقی و اروپای مرکزی

We examine the international stock market comovements between Western Europe vis-à-vis Central (Czech Republic, Hungary and Poland) and South Eastern Europe (Croatia, Macedonia and Serbia) using multivariate GARCH models in the period 2006–2011. Comparing these two groups, we find that the degree of comovements is much higher for Central Europe. The correlation of South Eastern European stock markets with developed markets is essentially zero. An exemption to this regularity is Croatia, with its stock market displaying a greater degree of integration toward Western Europe recently, but still below the levels typical for Central Europe. All stock markets fall strongly at the beginning of the global financial crisis and we do not find that the crisis altered the degree of stock market integration between these groups of countries.

The economies in Central and Eastern Europe witnessed major structural changes during the last two decades. Many countries, especially in Central Europe, carried out ambitious reforms soon after the fall of communism, successfully integrated in European structures and after the initial period of transition experienced solid growth. On the other hand, some countries, especially in South Eastern Europe, progressed more slowly in creating a market-oriented economy and some important reforms have been undertaken only recently (Campos and Horvath, 2012). In this article, we want to compare the stock market integration of these two groups – Central Europe and South Eastern Europe – with the developed markets and examine whether the degree of integration differs. While we know relatively much about stock market behavior in Central Europe (Égert and Kočenda, 2007, Hanousek and Kočenda, 2011 and Kočenda and Égert, 2011), a systematic examination of stock market comovements in South Eastern European countries is, to our knowledge, missing. We want to bridge this gap and examine whether the degree of stock market comovements with developed markets differs from that in Central Europe. For this reason, we collect daily data on stock market indices from the Central European countries (Czech Republic, Hungary and Poland) and several South Eastern European countries (Croatia, Macedonia and Serbia) from 2006 to 2011. As regards the South Eastern European countries, we specifically focus on countries that used to be a part of Yugoslavia and are not integrated in the European Union.1 Although the financial systems in Central European and South Eastern European countries are largely bank-based, an analysis of stock market developments can still provide useful insights. First, it may help policymakers understand the nature of cross-country shock transmission in a timely fashion since unlike many other economic series, stock market data are available at a high frequency. Similarly, it may be useful to investment managers for international portfolio diversification. Second, although the stock markets in these countries are relatively small in size, they still possess predictive power for future economic activity and prices. Using the Czech data, Havranek et al. (2012) compare the forecasting accuracy of various financial variables such as credit growth, loan loss provisions, banking sector liquidity, share of non-performing loans and stock market index and find that the stock market index tends to provide more accurate forecasts for the macroconomic environment than the remaining financial variables. Third, Baele (2004) puts forward that looking at stock market comovements is one way to assess financial integration. Clearly, financial integration has direct consequences for financial stability (see De Nicolo and Tieman, 2006 and Fecht et al., 2008). Our results suggest that Central European stock markets are highly integrated with the developed markets. The conditional correlations between Central European and Western European stock markets reach a value around 0.6, which is close to the correlation reported in the literature for the US and Canadian stock markets (see, for example, Longin and Solnik, 1995 and Forbes and Rigobon, 2002). On the other hand, the degree of comovements between Serbian as well as Macedonian stock markets with developed markets is practically zero. The Croatian stock market evolves from nearly zero comovements at the beginning of our sample to values as high as those for Central Europe before the outset of the global financial crisis and subsequently falls to lower but still positive values during the crisis. The results for Croatia vis-à-vis other South Eastern European countries should not come as a surprise, as the stock market capitalization is greater in Croatia than in the remaining South Eastern European stock markets, financial reforms progressed faster and EU entry negotiations are in progress.2 The article is organized as follows. Section 2 discusses the related literature, while Section 3 describes the data. In Section 4 we briefly introduce the multivariate GARCH model. Section 5 presents the results. Concluding remarks are offered in Section 6. An Appendix A with additional results follows.

In this article, we examine the stock market comovements between Western Europe vis-à-vis Central (Czech Republic, Hungary and Poland) and South Eastern Europe (Croatia, Macedonia and Serbia) using daily data from 2006 to 2011. For this reason, we estimate the bivariate BEKK–GARCH models to receive the conditional correlation in order to shed light on stock market integration in this set of countries. Our motivation for this exercise is to assess whether stock markets in Central Europe, i.e. in countries sufficiently integrated into European structures, are indeed more closely linked with stock markets in Western Europe. Next, as the conditional correlations are available on a daily basis, we may also assess whether stock market integration changes over time. More specifically, we assess the hypothesis whether some countries that intensified their integration process toward the EU are more likely to exhibit increased stock market integration. In addition, our motivation is also to evaluate whether the global financial crisis changed the nature of shock transmission between these countries. In doing so, we not only update previous research by including the current global financial crisis period, but also evaluate the stock market integration of Western Europe vis-à-vis several South Eastern European countries, a topic on which we have very limited empirical evidence. The results show that the degree of stock market integration of Central Europe vis-à-vis Western Europe is much higher than integration of South Eastern Europe vis-à-vis Western Europe. As concerns Central Europe, the corresponding conditional correlation is around 0.6. This is a sizeable correlation, especially in light of previous studies examining the correlation among developed countries with a high degree of economic integration. For example, Longin and Solnik (1995) report the value of 0.7 for the conditional correlation between the US and Canadian stock markets. On the other hand, the conditional correlation between South Eastern European vis-à-vis Western European stock markets is much lower. In the case of Serbia and Macedonia, the correlation is, on average, zero for the full sample. Croatia displays zero correlation at the beginning of our sample, the correlation increasing to values as high as the ones for Central Europe before the onset of the global financial crisis and subsequently falling to lower, but still positive values. The evolution of the conditional correlation of Croatia is in some sense unique, as the corresponding correlations do not exhibit any apparent trend and remain largely the same for all countries. The increasing correlation for Croatia is likely to be associated with the growing economic integration toward the EU coupled with the intensified negotiation process especially in 2007–2010, when Croatia aligned most of the negotiation chapters including those related to the financial sector in line with the EU's acquis communautaire. Nevertheless, we have to keep in mind that the results are also likely to be influenced by the decrease in market capitalization during the crisis, which may have translated into somewhat weaker stock market integration. In terms of future research, we believe it would be worthwhile to examine other South Eastern European countries as well as to broaden the scope in the direction of covering a wider array of various financial segments in order to evaluate the financial integration of these countries with the EU in a fuller manner.