Journal of Applied Finance & Banking

Regional and International Causal Linkages. Evidence from CEE Stock Markets

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• Abstract

  This study examines the dynamic linkages between nine Central and Eastern European (CEE) emerging markets and the developed ones, i.e. Austrian, French, German, British and American stock markets. To investigate the nature of transmission of information we employ two econometric models which are estimated in framework of maximum likelihood, GARCH, and vector autoregression. Our findings suggest that there exist some reaction from CEE markets to the arrival of price innovations from the developed markets, but the nature of these reactions and responses is mixed. However, U.S. and Austrian markets exert a higher impact over the CEE analyzed ones, meaning that the shocks from international and regional leaders are greater than those from continental leaders over the CEE emerging markets. In addition, we found that the national market price innovations account for more of the error variance while developed markets’ price innovations account for less of the forecast error variance.