Integration of Capital Markets from Central and Eastern Europe: Implications for EU Investors


Our paper investigates the extent of capital market co-movements between three emerging markets Czech Republic, Hungary and Poland and three developed markets from the European Union - Austria, France and Germany. We test whether an increase in correlations between the six markets took place in recent years, as revealing higher integration of capital markets in the region. We find a statistically significant positive trend in cross-market correlations between 1999 and 2008, before the emergence of the global financial crisis. Movements in national stock markets are not fully synchronized, but increases in market volatilities lead to increases in cross-country correlations. There is a long-term relationship between some of these countries capital markets, and information is transmitted from one market to the other. Our findings confirm previous studies and lead to the conclusion that stock markets from Central and Eastern Europe became more integrated with the developed markets in European Union.


capital markets, co-integration, European Union