CEE Stock Research Articles

Price Spillovers from Decentralized Finance to CEE Stock Markets

Price Spillovers from Decentralized Finance to CEE Stock Markets

Volatility and Spillover Effects between Central–Eastern European Stock Markets and Energy Markets: An Emphasis on Crisis Periods

The objective of this paper is to study the spillover effects between energy markets and stock markets with emphasis on the significant crisis periods of the last 15 years, the period of the financial crisis that officially started in 2008, the pandemic period, generically called COVID-19, and the recent confrontation in Eastern Europe. Understanding the volatility transmission mechanisms between the energy and capital markets and also from the energy markets back and the spillover effects that result is very important. We use multivariate GARCH models to highlight a spillover effect between energy commodities and equities in Central and Eastern Europe. The highest correlations are recorded for CEE stock markets with electricity and Brent, and the lowest for CEE stock markets with gas. The biggest symmetric shocks between energy and CEE stock markets occurred during the COVID-19 pandemic. In contrast, the biggest asymmetric shocks occurred during the financial crisis (for gas) and the Ukrainian invasion (for Brent). We also find that volatility is more sensitive to its lagged values in the marketplace than it is to new information. The impact and contagion of shocks caused by the oil market are greater than those of other energy markets.

Exploring the Contagion Effect from Developed to Emerging CEE Financial Markets

The paper aims to analyze the contagion effect coming from the developed stock markets of the US and Germany to the emerging CEE stock markets of Romania, Czech Republic, Hungary, and Poland using daily data for the period April 2005–April 2021. The paper also captures the level of integration of these emerging stock markets by analyzing the volatility spillover phenomenon. The quantification of the contagion effect coming from the developed to the emerging stock markets consisted of an empirical analysis based on the DCC-GARCH (Dynamic Conditional Correlation) model. Through this multivariate model, the time-varying conditional correlations were analyzed, both in periods of normal economic development and in times of economic instability, when there was a significant increase in the correlation coefficients between developed and emerging stock market indices. Furthermore, the level of connectedness between these markets has been analyzed using the volatility spillover index developed by Diebold and Yilmaz. The empirical results surprised the high level of integration of the analyzed stock markets in Central and Eastern Europe, with the intensity of volatility transmission between these markets increasing significantly during times of crisis. All stock market indices analyzed show periods during which they transmit net volatility and periods during which they receive net volatility, indicating a bidirectional volatility spillover phenomenon. Mostly, the BET, PX, and WIG indices are net transmitters of volatilities, whereas the BUX index is net recipient, except during the COVID-19 crisis, when it transmitted net volatility to the other three indices. Finally, using a Markov switching-regime VAR approach with two regimes, we explored the contagion effect between emerging CEE and developed stock markets during the COVID-19 pandemic. The empirical results proved a shift around the outbreak of the health crisis, after which the high volatility regime dominates the CEE markets. The contagion effects from developed stock markets to emerging CEE markets significantly increased during the first stage of the health crisis.

Persistence of pre-IPO earnings of new companies from CEE stock markets

Research background: A company?s earnings are one of the main determinants of investment decisions on the stock market. Thus, the reliability of disclosed financial information is crucial for the efficient allocation of capital. Unfortunately, reported earnings are an economic category susceptible to manipulation. This problem grows especially in the case of an initial public offering (IPO), as there is significant information asymmetry. Purpose of the article: The main aim of the paper is to assess the persistence of earnings reported by companies in the IPO process and to empirically identify financial characteristics associated with persistence of earnings. The usefulness of financial information is directly related to the issue of earnings quality. Therefore, this paper contributes to the stream of study on the quality of financial reporting of new stock companies. Methods: I employ a simple single-factor regression model to recognize the earnings persistence in new stock companies. Pre-IPO earnings are the explanatory variable. Then, I use multiple regression analysis to identify factors that influence this metric of reported earnings quality. Findings & value added: Using a sample of companies from stock exchange markets in Central and Eastern Europe (i.e., the Warsaw Stock Exchange, the Bulgarian Stock Exchange, the Bucharest Stock Exchange, the Belgrade Stock Exchange, the Prague Stock Exchange) that went public between 2010 and 2018, I find that, generally, pre-IPO earnings hold higher persistence compared to earnings reported in the year of the IPO. Profitability seems to be a factor that significantly influences this feature. Thus, the results contribute to corporate theory and practice facing insufficient empirical evidence on the issue of sustaining pre-IPO profitability in the long term, additionally putting these concerns in the context of the economic environment of European emerging stock markets.

Diversification Perspectives of a Single Equity Market: Analysis on the Example of Selected CEE Countries

The study addresses the benefits of a unified stock market in terms of diversification risk for the eight CEE stock markets. For this purpose, each stock market was treated as a separate portfolio based on the companies listed during 2018–2019. Portfolio diversification techniques were used to identify risk linked with the eight Central Eastern European stock markets. The results show that the stock market with the lowest diversification risk was the Bulgarian Stock Exchange, followed by the Prague Stock Exchange, the Ljubljana Stock Exchange, and at the end stands the Zagreb Stock Exchange. The portfolio constructed from the Zagreb Stock Exchange carries the highest portfolio risk, but it also offers the highest weekly weighted average returns. Stock markets that benefit in terms of portfolio risk from unification are the Bratislava Stock Exchange, the Budapest Stock Exchange, the Bucharest Stock Exchange, the Warsaw Stock Exchange, and the Zagreb Stock Exchange. The indexes where the portfolio risk increases at the time of unification are the Bulgarian Stock Exchange, the Ljubljana Stock Exchange, and the Prague Stock Exchange. From a managerial perspective, financial investors get a novel outlook on the diversification possibilities offered within a hypothetical unified CEE stock market.

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

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.

Bitcoin and CEE stock markets: fresh evidence from using the DECO-GARCH model and quantile on quantile regression

PurposeThis study examines the inter-linkages between Bitcoin prices and CEE stock markets (Hungary, the Czech Republic, Poland, Romania and Croatia).Design/methodology/approachThe dynamic contemporaneous nexus has been analyzed using both the multivariate DECO-GARCH model proposed by Engle and Kelly (2012) and quantile on quantile (QQ) methodology proposed by Sim and Zhou (2015). Our study is implemented using the daily data spanning from 6 September 2012 to 12 August 2019.FindingsFirst, the findings show that the average return equicorrelation across Bitcoin prices and CEE stock indices are positive, even though it is found to be time-varying over the research period shown. Second, the Bitcoin-CEE stock market association has positive signs for most pairs of quantiles of both variables and represents a rather similar pattern for the cases of Poland, the Czech Republic and Croatia. However, a weaker and primarily negative connectedness is found for Hungary and Romania, respectively. Furthermore, the interconnectedness between the co-movements in the Bitcoin market and stock returns changes significantly across quantiles of both variables within each nation, indicating that the Bitcoin-stock market relationship is dependent on both the cycle of the stock market and the nature of Bitcoin price shocks.Practical implicationsThe evidence documented in this study has significant implications for divergent economic agents, including global investors, risk managers and policymakers, who would benefit from a comprehensive knowledge of the Bitcoin-stock market relationship to build efficient risk-hedging models and to conduct appropriate policy reactions to information spillover effects in different time horizons.Originality/valueThis paper is the first study employing both the multivariate DECO-GARCH model and QQ methodology to shed light on the nexus between Bitcoin prices and the stock markets in CEE countries. The DECO model uses more information to compute dynamic correlations between each pair of returns than standard dynamic conditional correlation (DCC) models, declining the estimation noise of the correlations. Besides, QQ approach allows us to capture some nuanced features of the Bitcoin-stock market relationship and explore the interdependence in its entirely. Therefore, the main contribution of this article to the related literature in this field is significant.研究目的本研究旨在探討比特幣的價格與中東歐股市(匈牙利、捷克共和國、波蘭、羅馬尼亞和克羅地亞) 之相互聯繫.研究設計/方法/理念研究使用恩格爾與凱利(2012)(Engle and Kelly (2012)) 提出的多變量DECO-GARCH模型及Sim 與Zhou(2015)(Sim and Zhou ( 2015)) 研製的分位數-分位數方法來分析動態同期的聯繫。我們的研究使用由2012年9月6日至2019年8月12日期間取得的每日數據來進行.研究結果首先、研究結果顯示、跨比特幣價格與中東歐股價指數的平均回報當量關聯是正相關的，即使在研究期間被發現是隨時間而變化的。第二、比特幣與中東歐股市之聯繫在大多數兩變數分位數對而言出現正相關跡象，而且，這聯繫在波蘭、捷克共和國及克羅地亞而言表現一個頗相似的模式。唯就匈牙利而言、這聯繫則較弱、而羅馬尼亞則主要是負聯繫。研究結果亦顯示: 比特幣市場內的聯動與股票回報間之內在關聯會在每個國家內跨兩個變數的分位數而顯著地改變，這顯示比特幣-股市關係是取決於股市的週期和比特幣價格衝擊的本質.實際的意義本研究所記載的證據、對不同的經濟行為者而言極具意義 (這包括國際投資者、風險管理經理和政策制定者)，因他們會受惠於對比特幣-股市關係的全面認識，他們可建立有效的風險對沖模型、及在不同時間範圍對資訊溢出效應進行適當的政策反應.研究的原創性/價值本文為首個研究使用多變量DECO-GARCH模型和分位數-分位數(QQ)方法、來解釋比特幣價格與中東歐國家之股市的關係。這DECO模型使用比標準動態條件關係模型更多資訊，來計算每對回報間之動態關係，這能減少估測雜訊，而且，QQ方法讓我們可以取得比特幣-股市關係的一些細微特徵及全面地探索其相互依賴性。因此，本文的主要貢獻是在這學術領域內有關的文獻上.

New empirical evidence on CEE's stock markets integration

AbstractThe main aim of the study was to explore the integration of CEE’s stock markets (Central, South‐East and Baltic) with those of the developed ones (Germany, USA and the UK). Using daily data from 20 October 2000 up to 20 October 2016, the static analysis indicates a long‐run cointegration relationship between CEE markets and all three counterparts considered. The dynamic analysis indicates several short‐run episodes of cointegration, which are influenced by nondomestic factors. When comparing among the counterparts, one can highlight that the US stock market is less integrated with emerging markets, which could be considered for portfolio diversification. Furthermore, the contagion effect is not rejected, given that the dynamic pairwise correlations are likely to be affected by herding behaviour and significant break dates.

The Non-Trading Problem in Assessing Commonality in Liquidity on Emerging Stock Markets

The purpose of this study is to explore commonality in liquidity on seven small emerging CEE stock markets in the Czech Republic, Hungary, Slovakia, Slovenia, Lithuania, Estonia, and Latvia, in the context of serious problems with stock illiquidity. The number of companies that reveal a substantial non-trading problem is large. A modified version of the Amihud measure is utilized as daily liquidity proxy for stocks. The OLS-HAC method and the GARCH-type models are employed to infer the patterns of commonality in liquidity. No reason has been found to support intra-market commonality in liquidity on each investigated stock exchange.

Testing for Seasonal Affective Disorder on Selected CEE and SEE Stock Markets

Effects of seasonal affective disorder (SAD) are explored on several selected Central and South East European markets in this study for the period 2010–2018. Both return and risk sensitivities on the SAD effect are examined for 11 markets in total (Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Hungary, Poland, Serbia, Slovakia, Slovenia, Romania and Ukraine). SAD effects are based upon psychiatric and behavioural theories, and are rarely observed on the stock markets today. Thus, this research provides empirical evaluation of the mentioned effects for some of the markets for the first time in the literature. The results indicate that 6 out of 11 markets exhibit SAD effects to some extent, meaning that investors’ risk aversion does change over the year, depending upon the season of the year. Such results have consequences in finance theory modelling and practical usage in investment strategies on stock markets as well.

Univariate and Bivariate Volatility in Central European Stock Markets

This paper examines if the volatility exhibits a symmetric or an asymmetric response to past shocks, particularly the relevance of structural breaks for Central European (hereinafter referred to as CEE) stock markets. In addition, it is of great interest to see if the CEE emerging markets are correlated with other emerging ones, as well as to analyse the correlation with the developed markets, for optimizing investment portfolios. Using a CEE group approach (regional index) and daily data from 2002 to 2015, the results suggest that markets react differently to similar negative and positive returns, except for the rapid growth period, when the greed sentiment dominates the markets. Furthermore, the structural break dates affect volatility, the highest asymmetric coefficient being recorded for the pre-crisis period. For the bivariate approach, the emerging markets and developed markets indexes provided by the Morgan Stanley Capital International (hereinafter referred to as MSCI) have been considered and the results suggest that CEE stock markets are correlated with emerging stock markets rather than developed ones. For both pairs, the correlation is consistently higher for the break dates characterized by an increase in volatility, which is in line with the literature that claims that the co-movements increase when international factors dominate the national ones, and influence stock markets.

An Empirical Investigation of Herding Behavior in CEE Stock Markets under the Global Financial Crisis

Abstract The aim of this paper is to investigate the herding behavior of investors in ten CEE stock markets for size-ranked portfolios and to assess the impact of the recent global financial crisis on the cross-sectional absolute deviation of stock returns, based on the intuitive assumption that herding behavior is more intensive during extreme market movements. Considering that the majority of studies on herding behavior are focused on the US and Asian markets and given that in emerging and frontier markets there is a slower assimilation of information into stocks prices, and in consequence a higher propensity to herd, our study fills a gap in the literature by approaching Central and Eastern European markets. We examine herding behavior by using daily data on stock prices for 384 corporations from January 2, 2003 to December 31, 2013 and we investigate for herding behavior at the level of different size-ranked portfolios of stocks. We find evidence of herding in four CEE countries for at least one quintile over the analyzed period and our results confirm that the GFC affected the gregarious behavior on CEE markets.

The Dividend Premium in the CEE Stock Market

Abstract We investigate cross-sectional patterns related to dividends in the CEE stock market. We investigate a broad sample of 1153 companies from 11 countries in years 2002-2014. We use sorting and tests based on cross-sectional regression, and apply tests of monotonic relation. The principal findings are as follows. The high dividend stocks perform markedly better on a risk-adjusted basis, even after applying the classical three- and four factor models. This observation is supplemented with the evidence of monotonic relation: the higher dividend yields, the higher mean returns. However, the abnormal returns related to dividend yields are characteristic largely only for big- and midcaps. We find very weak evidence for the dividend premium across the micro stocks

Mergers and Acquisitions: Evidence on Post-Announcement Performance from CEE Stock Markets

The aim of this paper is to provide fresh-out of sample evidence on short-term and long-term performance following announcement of mergers and acquisitions. The research is based on 109 M&A deals in Central and Eastern European countries for years 2001-2014. For the short-horizon event studies, we use ACAR approach, and measure abnormal returns with zero, index and market models. For the long-run studies, we build equally and value weighted calendar portfolios and test their performances with CAPM, three-factor and four-factor models. We document positive and significant short-term abnormal returns on acquiring and target companies in the first weeks following the transaction announcement. Second, we find long-run non-significant negative abnormal returns of acquiring companies.

The Role of Dividend Yields in Portfolio Optimization - Evidence from the CEE Market

We investigate cross-sectional patterns related to dividends in the CEE stock market. We investigate a broad sample of 1153 companies from 11 countries in years 2002-2014. We use sorting and tests based on cross-sectional regression, and apply tests of monotonic relation. The principal findings are as follows. The high dividend stocks perform markedly better on a risk-adjusted basis, even after applying the classical three- and four factor models. This observation is supplemented with the evidence of monotonic relation: the higher dividend yields, the higher mean returns. However, the abnormal returns related to dividend yields are characteristic largely only for big- and midcaps. We find very weak evidence for the dividend premium across the micro stocks.

Illusionary Value, Size and Momentum Premiums in the CEE Markets

The answer to the question posed in the title is mostly yes. Using sorting and crosssection, we investigate the impact of illiquidity and transaction costs on value, size and momentum premiums in 11 CEE stock markets (Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia) for the years 2000–2013. We find very high value and size premiums and strong synergy effects between value and momentum strategies. However, the impact of illiquidity and transaction costs is almost lethal. After accounting for varying bid-ask spreads and liquidity, only the value premium survives. The size and momentum effects get obliterated.

Low Risk Anomaly in CEE Stock Markets

Using sorting and cross section, the study investigates the low risk anomaly in the CEE markets. The research examines four risk measures (beta, standard deviation, VaR, idiosyncratic volatility) and is based on performance of over 1.000 stocks from 11 countries for the years 2002-2014. The stock returns are non-monotonically related to a systematic component of risk and negatively related to an idiosyncratic component of risk. The top beta stocks underperform the market, while the portfolios with a low VaR or idiosyncratic volatility have positive abnormal returns, but some of the outperformance is explained by the momentum phenomenon. The VaR and idiosyncratic risk effects are largely reversed for microcaps. The risk-based strategies in the CEE to some extend comove with their international counterparts. Finally, the low-risk stocks do not provide an effective hedge against market distress.

Estimation of the Impact of Oil and Gas Price Shocks on GDP Growth and Stock Returns in Central and Eastern Europe

This study attempts to estimate the path-through effects from oil and gas-related shocks to GDP growth and stock returns in twelve CEE countries using structural VAR approach recently developed in the literature. The baseline model is the global oil market model which endogenizes oil price changes. This model is modified by the author and applied to the European gas market. Then the impact of identified structural global oil and European gas-related shocks on GDP dynamics and stock market returns is studied using finite distributed lag models and another structural VARs. The study confirms recent findings that the factors behind oil and gas price changes do matter – different underlying shocks impact GDP growth and stock returns in the CEE region in different ways. It’s shown that in certain CEE countries oil and gas price increasing global and European aggregate demand shocks lead to higher GDP and positive stock returns over 6-8 months horizon despite the fact that some of these countries are net oil and gas importers. However, if fuels price increases are due to oil and gas-specific demand shocks, then GDP and stock prices tend to fall over 10-12 months horizon. In general, gas-related shocks were found more important for CEE economies and stock markets than oil-related shocks, what is in line with regional energy mix fundamentals.

Nonlinear dynamics in CEE stock markets indices

We investigate the existence of nonlinearities in the dynamics of the returns of stock markets indices from CEE economies. We use several types of nonlinear tests. We discuss the implications of the results with respect to the efficient market hypothesis.

Shift contagion with endogenously detected volatility breaks: the case of CEE stock markets

Using data from three Central and Eastern European (CEE-3) and two developed stock markets, we present a methodology for validating the existence of shift contagion between these markets. The use of endogenously detected changes in the volatility of stock market returns allows us to define relatively high- and low-volatility regimes for particular stock markets. We verify whether volatility regimes are significantly associated with dynamic conditional correlations (DCCs), thus providing evidence for contagion between stock markets.