Are Relationships between CE Equity Markets Dependable on Stock Cycles?

Capital markets from Central and East Europe enjoy increasing interesting of international investors. The proof is, among others, that theirs capitalization increases year by year. From the investors’ point of view, it is very important to define the relationship between capital markets. Close relationship denotes that financial markets are integrated and it has important implications. Highly integrated markets are not isolated from international shocks. This could be also the reason effective portfolio risk diversification between integrated markets can not be achieved.

In the paper we discuss the results of the long relationships among the biggest four stock exchanges situated in the Central Europe: Warsaw Stock Exchange (WS), Vienna Stock Exchange (VSE), Praque Stock Exchange (PSE) and Budapest Stock Exchange (BSE). The research is based on the observations of the quotations four indices: ATX, BUX, PX50, WIG and WIG20, from 03.01.2000 until 27.03.2009. They are considered following data: daily, weekly (the last quotation in the week) and monthly (the last quotation in the month). The investigation is provided also for the periods as follows: the bear market (when the indexes were falling down), stagnation and the bull market (when the indexes were rising up). For the examination of the long-run relationships is used cointegration analysis with Johansen procedures.

The preliminary results of cointegration test indicate that in whole period daily and weekly data are not cointegated, but for monthly observation cointegration appears. We can suppose that long-run relationships between WSE and Vienna, Prague or Budapest Stock Exchanges exist but they are sensitive. The division the whole period into smaller sub-periods – the weekly or daily quotation of indexes became cointegrated. So we can observe long-run relationship when the periods are shorter and characterized by market tendency. We can suppose that different markets have different dissimilar responses to changing stock cycles. The main aim of the analysis is to investigate the relationships between markets in periods covered change of the tendency.

* Scientific research with the financial support of the Polish Ministry of Science and Higher Education Grant No. N N111 43 1837.