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Journal of Economic Integration 2012 March;27(1) :115-122.
Stock Market Integration Between Three CEECs

Guglielmo Maria Caporale Nicola Spagnolo 

Centre for Empirical Finance, Brunel University, West London, UB8 3PH, UK. Tel.: +44 1895 266 713; fax: +44 1895 269 770. E-mail:
Centre for Empirical Finance, Brunel University, West London, UB8 3PH, UK. Tel.: +44 1895 266 366; fax: +44 1895 269 770. E-mail:
Copyright ©2012 Journal of Economic Integration

This paper estimates a trivariate VAR-GARCH(1,1) model to examine volatility linkages between the stock markets of three Central and Eastern European countries (CEECs), namely the Czech Republic, Hungary and Poland. The empirical .findings suggest that following the EU accession regional linkages have become even stronger, and that therefore portfolio diversification within the region has become an even less effective investment strategy. This can be plausibly interpreted as reflecting deeper integration with the “old” EU economies, and has important implications for appropriate policy responses to shocks originating in those countries and affecting the .financial stability of the CEECs.

JEL Classification: C32, F36, G15

Keywords: Central and Eastern European Countries (CEECs) | Volatility Spillovers | VAR-GARCH Model
1. Bollerslev, T.P. and J.M. Wooldridge. (1992), “Quasi-maximum likelihood estimation and inference in dynamic models with time-varying covariances”, Econometric Review,11, 143-172.
2. Büttner, D., Hayo, B., and M. Neuenkirch. (2011), “The impact of foreign macroeconomic news on financial markets in the Czech Republic, Hungary, and Poland”, Empirica, forthcoming.
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