Stock market integration between the CEE-4 and the G7 markets: Asymmetric DCC and smooth transition approach.

Baumöhl, Eduard (2013): Stock market integration between the CEE-4 and the G7 markets: Asymmetric DCC and smooth transition approach.

Abstract

We study the transition process of emerging CEE-4 stock markets from segmented to integrated markets and hypothesize that this process has been gradual over time. As a proxy for integration, co-movements with developed G7 markets are estimated using the asymmetric DCC-GARCH model. A smooth transition logistic trend model is then fitted to the dynamic correlations to examine the integration process. Evidence of strengthening relationships among the markets under study is provided. In the case of Czech stock market, the results suggest that the transition began between the end of 2005 and first half of 2006. The transition midpoints for the Hungarian and Polish markets seem to overlap with the recent financial crisis. Correlations between CEE-4 and G7 markets have been approximately 0.6 in the last few years. The only exception is the Slovak stock market, which still appears to be more segmented and isolated from others in the CEE region and from the developed markets of the G7.

• Item Type: MPRA Paper
• Language: English
• Keywords: stock market co-movements, G7, CEE-4, asymmetric GARCH models, ADCC, smooth transition model
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets; G - Financial Economics > G0 - General > G01 - Financial Crises

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