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Cointegration and conditional correlations among German and Eastern Europe equity markets

Guidi, Francesco and Gupta, Rakesh (2010): Cointegration and conditional correlations among German and Eastern Europe equity markets.

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Abstract

This paper aims to examine the long term relationship between German and three Central and Eastern Europe (CEE) equity markets. Application of Johansen as well as Engle-Granger cointegration tests show that there is no long-term relationship among these markets while the Gregory-Hansen cointegration test rejects the null hypothesis of no cointegration with structural break. An additional objective is to capture the time-varying correlation among these markets through the dynamic conditional correlation models. Empirical results suggest that correlations increased after the accession of the CEE countries into the European Union.

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