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An analysis of South-Eastern European stock markets: evidence on cointegration and portfolio diversification benefits

An analysis of South-Eastern European stock markets: evidence on cointegration and portfolio diversification benefits

Guidi, Francesco and Ugur, Mehmet ORCID: 0000-0003-3891-3641 (2014) An analysis of South-Eastern European stock markets: evidence on cointegration and portfolio diversification benefits. Journal of International Financial Markets, Institutions & Money, 30. pp. 119-136. ISSN 1042-4431 (doi:10.1016/j.intfin.2014.01.007)

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Abstract

This paper investigates whether the South-Eastern European (SEE) stock markets of Bulgaria, Croatia, Romania, Slovenia and Turkey are integrated with their developed counterparts in Germany, the UK and the USA. Using static cointegration analysis, we find that the SEE markets are cointegrated with the German and the UK markets over the period 2000–2013, but not with the USA market. Furthermore, the dynamic cointegration analysis reveals the existence of time-varying cointegration among the SEE markets and their developed counterparts, particularly during sub-periods that reflect the effects of common shocks such as a financial crisis. Therefore, one general conclusion we report is that both static and dynamic cointegration tests are necessary to analyse the extent to which international stock markets are cointegrated. The second question we address is whether any diversification benefits existed during the period that encompasses the recent financial crisis. We report that diversification benefits did exist from September 2007 to June 2013 despite evidence of dynamic cointegration during most of the crisis period from September 2008 to May 2010. Therefore, we suggest that any evidence of dynamic cointegration must be supplemented with evidence from a portfolio analysis before conclusions are made about the absence or existence of diversification benefits.

Item Type: Article
Additional Information: [1] First published online: 5 February 2014. [2] Published in print: May 2014.
Uncontrolled Keywords: South-Eastern Europe, stock markets, cointegration, correlation, diversification
Subjects: H Social Sciences > HG Finance
Faculty / Department / Research Group: Faculty of Business > Greenwich Political Economy Research Centre (GPERC)
Related URLs:
Last Modified: 02 May 2017 09:02
Selected for GREAT 2016: None
Selected for GREAT 2017: GREAT a
Selected for GREAT 2018: None
URI: http://gala.gre.ac.uk/id/eprint/11323

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