Financial integration of six former Yugoslavian equity markets : evidence from the financial crisis

This thesis investigates the financial integration of former Yugoslavian countries’ equity markets into developed markets with respect to the financial crisis of late 2000s. The purpose of the study is to investigate whether the former Yugoslavian countries became integrated globally before the financial crisis and if the integration process increased or decreased during the crisis. The sample includes six former Yugoslavian equity markets, specifically Serbia, Slovenia, Croatia, Bosnia & Herzegovina, Montenegro and FYR Macedonia as well as the US and German equity markets. Financial integration and dynamic linkages are tested with vector autoregressive framework, specifically cointegration vectors as the unit root tests, Johansen procedure, Granger causality test and exclusion test are employed. The empirical findings indicate that Croatia and Slovenia represent markets with considerable financial integration towards developed markets of US and Germany. Serbia, Bosnia, Montenegro and Macedonia only showed the short-run cointegration with mature markets during the financial crisis period. The financial integration among the former Yugoslavian countries increased during the financial crisis. Croatia represents a dominant market in the region of former Yugoslavia affecting the returns of every other market in the region significantly. The role of Serbian market in the region increased during the financial crisis period. Due to the level of financial integration, superior portfolio returns for international investors are rather limited in case of Croatia and Slovenia as these markets’ returns are in the long-run equilibrium with mature markets. However, diversification benefits can be pursued by investing in other former Yugoslavian countries.fi=Opinnäytetyö kokotekstinä PDF-muodossa.|en=Thesis fulltext in PDF format.|sv=Lärdomsprov tillgängligt som fulltext i PDF-format