Equity Market Integration and Portfolio Decisions: A Study of NASDAQ USA and MSCI Emerging Markets Asia Indexes

Purpose The purpose of this paper is to examine the conditional correlations and spillovers of volatilities across CEE markets, namely, Hungary, Poland, the Czech Republic, Romania and Croatia, in the post-2007 financial crisis period. Design/methodology/approach The authors use five-dimensional GARCH-BEKK alongside with the CCC and DCC models. Findings The estimation results of the three models generally demonstrate that the correlations between these markets are particularly significant. Also, own-volatility spillovers are generally lower than cross-volatility spillovers for all markets. Practical implications These results recommend that investors should take caution when investing in the CEE equity markets as well as diversifying their portfolios so as to minimize risk. Originality/value Unlike the previous studies in this field, this paper is the first study using multivariate GARCH-BEKK alongside with CCC and DCC models. The study makes an outstanding contribution to the existing literature on spillover effects and conditional correlations in the CEE financial stock markets.

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Does Equity Market Integration Exist Between Turkey and the Eurozone?

JEJAK ◽

10.15294/jejak.v11i1.12488 ◽

2018 ◽

Vol 11 (1) ◽

pp. 29-48

Author(s):

Berto Usman ◽

Nega Muhabaw Kassie ◽

Fitra Wahyudi

Keyword(s):

Market Integration ◽

Time Series Data ◽

Stock Exchange ◽

Equity Market ◽

Series Data ◽

Causality Test ◽

Stock Market Integration ◽

Vector Autoregression Model ◽

Dynamic Relationship ◽

Residual Matrix

This research investigates the existence of stock market integration between Turkey and the Eurozone. In this study, the performance of Turkey’s stock exchange is proxied by the BIST100, and the EURO STOXX50 is employed as a proxy for the Eurozone index. We hypothesize that there is a dynamic relationship between Turkey and the Eurozone. Methodologically, our research was conducted by employing monthly time series data obtained from EIKON datastream International. In order to demonstrate the extent of equity market integration between Turkey and Eurozone, a vector autoregression model (VAR) was utilized. According to the results, there is no co-integration between these two equity markets. This is in line with the output of residual matrix test, where the correlation between these two market indices was found to be low. However, a Granger causality test indicated that there was a low one-way contribution from Turkey to the Eurozone index during the observation period.

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