Prague Economic Papers 2015, 24(2):192-210 | DOI: 10.18267/j.pep.508

An Empirical Analysis of the Diffusion of Information across Stock Markets of Central and Eastern Europe

Ovidiu Stoica¹, Mark J. Perry², Seyed Mehdian³

¹ Professor of Finance, Faculty of Economics and Business Administration, ""Alexandru Ioan Cuza"" University of Iasi, Iasi, Romania, (ostoica@uaic.ro).

² Professor of Finance and Business Economics, School of Management, The University of Michigan-Flint, Flint, USA, Resident Scholar, the American Enterprise Institute, (mjperry@umich.edu).

³ Professor of Finance, The University of Michigan-Flint, Flint, USA, (seyed@umich.edu).

In this paper, we examine the efficiency of the transmission of information across the stock markets of Bulgaria, the Czech Republic, Hungary, Poland, Romania, and Slovakia, as well as the relative importance and influence of advanced equity markets of Germany and France on the abovementioned markets. The analysis is carried out using maximum likelihood regressions, Generalized Autoregressive Conditional Heteroskedastic (GARCH) models, and vector autoregression (VAR) estimations.

The empirical results suggest that the Central and Eastern European stock markets react to the arrival of price innovations from Germany and France, but national stock market price innovations account for more error variance compared to those of Germany and France, and generally show an increasing responsiveness over time, which could be interpreted as progress in the European financial integration.

Keywords: European integration, diffusion of information, integration of equity markets, entral and Eastern European countries

JEL classification: G14, G15

Published: January 1, 2015  Show citation