The study of the CEE stock markets seems to be an interesting area of research in finance, because even though these markets are still called emerging markets, they have undergone a significant development and expansion during last decade. More specifically, in this process, they have substantially benefited after their European integration due both to the improvements in their financial legislations, in line with the European Union (EU) requirements, and the increased attractiveness, as EU members, perceived by international investors and money managers. However, the financial crisis and meltdown brought a set of new concerns to deal with such as the stability of the national financial systems, euro survival, and the high public debt in several EU countries. In this changing and challenging climate, we evaluate the behavior of investors in the national stock markets during two extraordinary periods.
We use daily stock index returns for national indexes from selected Central and Eastern European countries (Bulgaria, Czech Republic, Hungary, Poland, Slovakia, Slovenia and Romania, which have all recently joined the European Union). We obtained the daily stock market data used in the study from Global Financial Data.
We analyze the shift in behavior of investors in the framework of three opposing hypotheses: The Overreaction Hypothesis (OH), the Uncertain Information Hypothesis (UIH), and the Efficient Market Hypothesis (EMH).
Using the patterns of cumulative abnormal returns in the national stock indexes, the study empirically tests whether or not this shift has occurred in investors’ behavior. Furthermore, the study attempts to investigate the consequences of the shifts.