The comovements of emerging stock markets of central and Eastern Europe: impact of EU

This paper examines the short and long run behaviour of emerging stock markets in Bulgaria, the Czech Republic, Cyprus, Estonia, Hungry, Latvia, Lithuania, Malta, Poland, Romania, Slovakia and Slovenia and assesses the impact of the EU on stock market linkages as revealed by the time series behaviour of their stock market indices. A time-series framework is adopted which incorporates: cointegration analysis including the Johansen procedure, Granger Causality tests, Variance Decompositions and Impulse Response analyses. Our main empirical results show that mostly one and, on some occasions, two cointegrating vectors exist in both pre- and post- EU periods that confirm the existence of long run relationships between markets. Granger Causality relationships are indentified among the most advanced emerging markets. The Variance Decomposition analyses show that regional integration is evident amongst the markets. Furthermore, the Impulse Response function illustrates that the shocks in returns persist for a very limited period of time; and in less than one week, there is no measurable reaction to the innovations among them in terms of small shock responses. The results hold for all twelve markets in the CE