Equity Market Integration in Emerging Balkan Markets
Research in International Business and Finance, Vol. 25, No. 3, pp. 296-307, September 2011
Posted: 15 May 2008 Last revised: 3 Apr 2011
Date Written: 2011
Abstract
This paper examines long-run relationships among five Balkan emerging stock markets (Turkey, Romania, Bulgaria, Croatia, Serbia), the United States and three developed European markets (UK, Germany, Greece), during the period 2000-2009. Conventional, regime-switching cointegration tests and Monte Carlo simulation provide evidence in favour of a long-run cointegrating relationship between the Balkan emerging markets within the region and globally. Moreover, we apply the Asymmetric Generalized Dynamic Conditional Correlation (AG-DCC) multivariate GARCH model of Cappiello, Engle and Sheppard (2006), in order to capture the impact of the 2007-2009 financial crisis on the time-varying correlation dynamics among the developed and the Balkan stock markets. Results show that stock market dependence is heightened, supporting the herding behaviour during the 2008 stock market crash period. Our findings have important implications for international portfolio diversification and the effectiveness of domestic policies, as these emerging markets are exposed to external shocks.
Keywords: Emerging Balkan stock markets, Cointegration, Regime switching, Dynamic conditional correlations
JEL Classification: C22, G15
Suggested Citation: Suggested Citation