A long-run relationship between Eastern European stock markets? Cointegration and the 1997/98 crisis in emerging markets

A Long-Run Relationship between Eastern European Stock Markets? Cointegration and the 1997/98 Crisis in Emerging Markets. — This paper describes the behavior of the Eastern European stock price indices for the period between 1995 and 1998. Particular emphasis has been directed toward the effects of the 1997/98 emerging market crisis. Using the Johansen methodology, a long-run relationship connecting these markets can be found for the pre-crisis period. The common stochastic trend vanished following the third quarter of 1997, and a massive change in the short-run behavior of the markets is shown. Developments on the Russian exchange are found to have a dominating influence during that period.