Stock market comovements between developed (represented in the article by markets of Austria, France, Germany, and the UK) and developing stock markets (represented here by three Central and Eastern European (CEE) markets of Slovenia, the Czech Republic, and Hungary) are of great importance for the financial decisions of international investors. From the point of view of portfolio diversification, short-term investors are more interested in the comovements of stock returns at higher frequencies (short-term movements), while long-term investors focus on lower frequencies comovements. As such, one has to resort to a time-frequency domain analysis to obtain insight about comovements at the particular timefrequency (scale) level. The empirical literature on the CEE and developed stock markets interdependence predominantly apply simple (Pearsons) correlation analysis, Granger causality tests, cointegration analysis, and GARCH modeling. None of the existent empirical studies examine timescale comovements between CEE and developed stock market returns. By applying a maximal overlap discrete wavelet transform correlation estimator and a running correlation technique, we investigated the dynamics of stock market return comovements between individual Central and Eastern European countries and developed European stock markets in the period from 1997-2010. By analyzing the time-varying dynamics of stock market comovements on a scale-by-scale basis, we also examined how major events (financial crises in the investigated time period and entrance to the European Union) affected the comovement of CEE stock markets with developed European stock markets. The results of the unconditional correlation analysis show that the developed European stock markets of France, the UK, Germany and Austria were more interdependent in the observed period than the CEEs stock markets. The later group of countries exhibited a lower degree of comovement between themselves as well as with the developed European stock markets during all the observed time period. The Slovenian stock market was the least correlated with other stock markets. By using the rolling wavelet correlation technique, we wanted to answer the question as to how the correlation between CEE and developed stock markets changed over the observed period. In particular, we wanted to examine whether major economic (financial) and political events in the world and European economies (the Russian financial crisis, the dot-com financial crisis, the attack on the WTC, the CEE countries joining the European union, and the recent global financial crisis) have influenced the dynamics of CEE stock market comovements with developed European stock markets. The results show that stock market return comovements between CEE and developed European stock markets varied over time scales and time. At all scales and during the entire observed time period the Hungarian and Czech stock markets were more interconnected to developed European stock markets than the Slovenian stock market was. The highest comove...
Abstract. Rapid credit growth has been one of the most pervasive developments in recent years in Central and Eastern Europe. We tested for the signifi cance of macroeconomic and banking sector variables that condition non-performing loan ratios and the hypothesis of procyclicality between economic activity and improving banking-sector results in the Baltic States, Bulgaria and Romania. The theory of procyclicality between economic activity and the non-performing loan ratio was proven. The increased economic activity improved the loan portfolio quality of the banking sector, as indicated by a lower NPL ratio. Due to a high share of loans denominated in a foreign currency and the fact of productivity gains in the tradable sector, the appreciation of the real exchange rate contributed to an improvement in loan portfolio quality. The procyclicality of banking sector performance and high economic activities growth could be a signal of an economy overheating and therefore a slowdown in economic activity is likely to accelerate the growth of the non-performing loan ratio in the Baltic States, Bulgaria and Romania.
Ab stract:An ex po sure to mac ro eco nomic risk fac tors across banks is a source of sys temic risk that in flu ences the bank ing sec tor per for mance. In this pa per, we pres ent some ev i dence on mac ro eco nomic vari ables af fect ing the non-per form ing loans (NPL) ra tio in the Czech Re pub lic, Slovakia and Slovenia. The GDP growth might have im proved bor row ers' abil ity to serve their bank loans in Slovenia, mean while the ac cel er at ing NPL ra tio dy nam ics has failed to sup port the hy poth e sis that the GDP growth fos ters an im prove ment in the NPL ra tio in the case of Slovakia. Mean while de cel er a tion in the NPL ra tio on ex port im pulses has sup ported a procyclical the ory in the Czech Re pub lic, Slovakia and Slovenia. The re sponse of non-per form ing loans to in fla tion sup ports the hy poth e sis about the low er ing in fla tion that de cel er ates the NPL ra tio. Sav ings have ac cel er ated the NPL ra tio in the case of Slovakia and Slovenia. The bank ing sec tor per for mance is pos si bly re flect ing a fa vour able as sess ment of the eco nomic growth and an in creas ing in debt ed ness of pri vate sec tor could be come causes of concern if the macroeconomic environment should develop less favourably.
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