BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 12/2005:
Russian equity market linkages before and after the 1998 crisis: Evidence from time-varying and stochastic cointegration tests
Brian M. Lucey and Svitlana Voronkova ()
Abstract: This paper examines the relationships between the Russian
and other Central European (CE) and developed countries’ equity markets
over the 1995-2004 period. Along with the traditional Johansen and Juselius
(1990) multivariate cointegration tests, we apply novel cointegration
approaches, including Gregory-Hansen (1996) test, which allows for a
structural break in the relationships, as well as the newly developed
stochastic cointegration test by Harris, McCabe and Leybourne (2002) and
the non-parametric cointegration method of Breitung (2002). The latter
tests point to a significant agreement that in the aftermath of the Russian
crisis of 1998 there was an increasing degree of comovements of the Russian
market with other developed markets, but not with CE developing markets.
This result is further confirmed by dynamic conditional correlation
modeling, which allows us to investigate graphically the evolution of
comovements in the system. The results of detailed cointegration analysis
suggest a. that the time-varying nature of equity markets comovements
should be explicitly accounted for while modeling long run relationships b.
that there is a decline in diversification benefits for foreign investors
seeking to invest in Russian equities over the long horizon.
Keywords: Stock Market Integration; CEE Stock markets; Russian Stock Market; Cointegration; (follow links to similar papers)
JEL-Codes: G10; G15; (follow links to similar papers)
43 pages, October 20, 2005
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