CONTAGION AND INTEGRATION OF CAPITAL MARKETS IN THE CEE COUNTRIES

Abstract

The purpose of this article is to study the contagion and the integration regarding the capital markets in Central and Eastern Europe (Romania, Hungary, Poland and Czech Republic). We will analyze the dynamics of correlation between these markets and the Eurozone over time. The methodology will be consisted of classical methods such as rolling-window Pearson correlation or more complex methods based on the correlation obtained using DCC-GARCH. At the same time, the results will be interpreted in the context of a diversified portfolio and will take into account the specificity of these markets and the phase of the economic cycle. The results revealed that the integration of the capital markets with the Eurozone markets has increased over time and the correlations were stronger. At the same time, increased integration has led to more pronounced contagion during the 2008 economic crisis.

Keywords

• financial integration; time-series; volatility; correlation; equity markets.
• contagion
• financial integration
• time-series
• volatility
• correlation
• equity markets