INTEGRATION OF STOCK MARKETS IN THE CONTEXT OF THE COVID 19 PANDEMIC

Structural changes in the environment, such as the synchronization of economies or financial integration, affect economic agents and institutions both individually and systemically. Whether the benefits of financial integration outweigh its risks and whether this process will increase financial stability depends on the resilience and flexibility of the financial system itself. The aim of this paper is an empirical analysis of the development of financial integration of the Czech, Hungarian and Polish stock markets with the euro area market during the periods of financial (in)stability including the COVID 19 pandemic period. Following the definition of financial integration that is based on the law of one price, the price-based and news-based measures will be applied in this paper. The empirical analysis will be provided on weekly data in the period from 2004 to 2022. Based on price measures, the overall results indicate that the global financial crisis has caused relatively significant price divergence of the CEE stock markets with the euro area, while the impact of the COVID 19 pandemic was only temporal and its impact was significantly smaller. On the contrary, the concept of asset price sensitivity shows that financial instability contributes to increasing financial integration.