Volatility and Correlations for Stock Markets in the Emerging Economies of Central and Eastern Europe: Implications for European Investors

Allen, David E.; Golab, Anna; Powell, Robert

doi:10.2139/ssrn.1611472

Cited by 6 publications

(4 citation statements)

References 22 publications

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“…The relationship between 12 emerging markets can be examined with the use of the GARCH volatility model in order to assess dynamic volatility behavior (Allen et al 2010); we agree with their results that there is a high volatility level in Eastern European countries, which is approximately the same for some of the countries (Hungary, Poland, Czech Republic, Romania and Slovakia) and less volatile in Bulgaria in the post-EU period and in Estonia and Lithuania in the pre-EU period.…”

Section: Literature Reviewsupporting

confidence: 81%

“…This article relates to a number of studies (Lang 2011;Ivanov et al 2012;Chan et al 2013;Albu et al 2015) that deal with financial liquidity and volatility specificities in emerging markets. We focus on the Eastern European area because we suggest that it occupies a very important place in modern globalization processes (Allen et al 2010;Vidovic 2011;Ivanov et al 2012).…”

Section: Literature Reviewmentioning

confidence: 99%

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Efficiency and transparency effects on Eastern European financial markets

Galloppo

Paimanova

2017

Int Econ Econ Policy

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The negative effect of financial crises on the emerging financial markets of Eastern Europe grew stronger due to a lack of transparency and low market efficiency. For this reason, our research focuses on transparency and efficiency measures with correlation to liquidity and volatility to gauge stock price reaction during two financial crises periods. Our findings revealed a very chaotic picture of the market and the presence of uncontrolled development. As it turned out, Eastern European financial markets did not meet our expectations regarding transparency, liquidity and risk. Hence, it calls into question the soundness of the rule of law, which raises doubts among investors. Our results demonstrated that Eastern European countries tend not to be characterized by transparency, which leads to limited market information and a greater likelihood of low-level stock market efficiency in terms of the Fama approach.

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Section: Literature Reviewsupporting

confidence: 81%

Section: Literature Reviewmentioning

confidence: 99%

Efficiency and transparency effects on Eastern European financial markets

Galloppo

Paimanova

2017

Int Econ Econ Policy

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“…We analyse target stock prices both before and after the announcement date, in order to observe potential differences between domestic and cross-border M&A transactions in Poland. As the literature suggests (see, e.g., Allen, Golab, & Powell, 2010), investing in Central and Eastern European (CEE) countries became increasingly interesting, due to a lot of factors. The main determinants explaining why investors prefer targets located in CEE region are the sustainable growth perspectives.…”

Section: Manda In Polandmentioning

confidence: 99%

Risk arbitrage in emerging Europe: are cross-border mergers and acquisition deals more risky?

Andrieş

Vîrlan

2017

Economic Research-Ekonomska Istraživanja

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Speculation spread in mergers and acquisitions (M&A), measured as the percentage difference between the offer price and the closing stock price of a target the day after the announcement, is the starting point for risk arbitrage returns, a topic receiving greater consideration both in practice and in the empirical literature. Reflecting the degree of risk in merger arbitrage investments, we found no significant difference between the speculation spread in domestic and foreign Polish deals, between 2000 and 2013. However, we found higher returns for cross-border portfolio, therefore investors seem more pessimistic with regards to the expected risk in cross-border deals. Also, on average, deal spreads do not correctly reflect the level of risk in merger arbitrage strategies with Polish targets.

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“…Su (2010) confirms this result for the Chinese stock market. Allen, Golab, and Powell (2010) study the relationships in the 12 emerging markets in Central and Eastern Europe and show that, of these emerging markets, the ones recognised as advanced emerging markets appear to be more sensitive to all shocks from other developed markets around the world.…”

Section: Introductionmentioning

confidence: 99%

Trading strategies with copulas

Stander

Marais

Botha

2013

J. econ. financ. sci.

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A new approach is proposed to identify trading opportunities in the equity market by using the information contained in the bivariate dependence structure of two equities. The relationships between the equity pairs are modelled with bivariate copulas and the fitted copula structures are utilised to identify the trading opportunities. Two trading strategies are considered that take advantage of the relative mispricing between a pair of correlated stocks and involve taking a position on the stocks when they diverge from their historical relationship. The position is then reversed when the two stocks revert to their historical relationship. Only stock-pairs with relatively high correlations are considered. The dependence structures of the chosen stock-pairs very often exhibited both upper- and lower-tail dependence, which implies that copulas with the correct characteristics should be more effective than the more traditional approaches typically applied. To identify trading opportunities, the conditional copula functions are used to derive confidence intervals for the two stocks. It is shown that the number of trading opportunities is highly dependent on the confidence level and it is argued that the chosen confidence level should take the strength of the dependence between the two stocks into account. The backtest results of the pairs-trading strategy are disappointing in that even though the strategy leads to profits in most cases, the profits are largely consumed by the trading costs. The second trading strategy entails using single stock futures and it is shown to have more potential as a statistical arbitrage approach to construct a portfolio.

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Volatility and Correlations for Stock Markets in the Emerging Economies of Central and Eastern Europe: Implications for European Investors

Cited by 6 publications

References 22 publications

Efficiency and transparency effects on Eastern European financial markets

Efficiency and transparency effects on Eastern European financial markets

Risk arbitrage in emerging Europe: are cross-border mergers and acquisition deals more risky?

Trading strategies with copulas

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