Econometric Analysis of Integration of Selected New EU Member CEE Stock Markets With Global Stock Market and Eurozone: Impact of Global Financial Crisis

Masaryk University, Brno, Czech Republic ,Suchacek Jan,Caridad Lopez Del Rĭo Lorena,Koutsky Jaroslav,Petr Seįa,Vsb  Technical University Of Ostrava, Ostrava, Czech Republic ,University Of Cĳrdoba, Cĳrdoba, Spain ,Jan Evangelista Purkyne University In Ustĭ Nad Labem, Ustĭ Nad Labem, Czech Republic

doi:10.24818/ea/2021/58/824

Abstract

The period of the global financial crisis can be characterized by the spillover of negative innovations among stock markets worldwide. Stock markets in Central Europe were not excluded as they are not isolated from global stock markets. Recently published scientific studies dealing with this theme were mainly focused on the integration of the new EU members´ stock markets with the eurozone only. Hence, this paper aims to investigate, compare and interpret integration among stock markets of selected new EU member states in Central Europe (the Czech Republic, Hungary, and Poland), the global stock market and the eurozone equity market within 2004-2018. The added value of this article consists especially in using a wider spectrum of econometric tools (cointegration, VAR model, Granger causality, variance decomposition) and comparison of changes of mutual relationships in three different testing sub-periods to study the dynamics in time. Our research is accomplished via usage of data on daily frequency. Delivered results showed that the degree of integration of Central European stock markets with the US stock market and eurozone significantly increased during global financial crisis. Moreover, stock markets in Central Europe are more integrated with the global stock market than the euro area.

Highlights

The process of globalization of the world economy plays a key role in the development of financial markets (Falahaty and Law, 2012)
Financial integration has been stimulated by the development and implementation of financial innovations whose use in developed stock markets has contributed to recent global financial crisis
This paper analyzed the process of financial integration, especially in times of financial stability, and instability caused by global financial crisis

Summary

Introduction

The process of globalization of the world economy plays a key role in the development of financial markets (Falahaty and Law, 2012). The process of integration of national stock markets can be considered as one of the consequences of those globalization tendencies. It has both negative and positive impacts on financial markets and real economy in general (Schmukler, 2004). We should mention the problem of deregulation and new legislation that significantly removes barriers to the flow of financial capital. This process demonstrably contributes to the integration of financial markets (Agrawal, 2017). The efficient allocation of financial resources is linked to economic growth (Law and Singh, 2014)

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