STOCK MARKET CO-MOVEMENTS IN CENTRAL AND EASTERN EUROPE

We examine the co-movements of the Central and Eastern European emerging stock markets, namely those of Visegrad Group-the Czech Republic, Hungary, Poland, and Baltic States Estonia, Latvia, Lithuania with developed markets (represented by the STOXX Global 1800 Index) over the period from January 2000 to December 2013. Mutual relationships are estimated in both standard and asymmetric DCC MV-GARCH models. Further on, time-varying correlations are used as a proxy of stock market integration and are explained by the smooth transition logistic trend model to examine, whether this process can be considered as gradual over time. We found that Visegrad stock markets exhibit in average higher correlations and the transition process is smoother in comparison to Baltic markets. Also positive relationship between deviations from the long-term logistic trend and market volatility has been confirmed. Thus, in more volatile periods correlations tend to be higher; providing decreasing diversification benefits for the international investors.