Market integration among foreign exchange rate movements in central and eastern European countries

Abstract

This study focuses on the level of interdependence across the Central and Eastern European (CEE) foreign exchange markets (Hungary, Poland, theCzechRepublic, RomaniaandCroatia) fromSeptember 2008 to September 2017, using the return spillover measure proposed by Diebold and Yilmaz (2009; 2012). We mainly find a bidirectional volatility spillover among these assets and the cross-market linkages in the CEE region have become stronger over time. Furthermore, the Czech exchangemarket has a significant influence on the rest of the foreign exchangemarkets. The total spillover remained very high over the periods 2010-2012 and 2015-2017, despite the noteworthy fluctuations in otherperiods.Theseresultswouldalsobeusefulforportfoliomanagers,policymakersandspeculativetraderstodevelop exploitable strategies, by providing knowledge of the transmission mechanisms of the volatility of foreign exchange markets. The results may support the distribution of assets in a financial portfolio, especially after financial integration.