BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 24/2011:
Transfer of financial risk in emerging eastern European stock markets: A sectoral perspective
Elena Fedorova ()
Abstract: With the rise of interconnected global financial systems,
there is an increased risk that a financial crisis in one country may
spread to others. The contagion effects of the 2008 global financial crisis
hit advanced economies fast and hard while sparing less developed and less
integrated financial systems. The present study focuses on the contagion
effects at Eastern European stock markets and changes in their
interconnections after EU accession in 2004. Specifically, we investigate
the relationship among the stock market sectors of Poland, Hungary and the
Czech Republic during 19982009 and their exposure to on-shored financial
risk. The evidence suggests direct linkages between different stock market
sectors with respect to returns and volatilities with increased
equity-shock transmission between markets after EU accession in 2004. Of
particular note is the intra-industry contagion in emerging Europe. Our
findings have implications for asset pricing and portfolio selection for
international financial institutions and financial managers.
Keywords: GARCH-BEKK; international risk transfer; emerging Eastern Europe; spillovers; intra- and inter-industry contagion; (follow links to similar papers)
JEL-Codes: C32; F36; G12; G15; (follow links to similar papers)
46 pages, October 11, 2011
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