An analysis of CEE equity market integration and their volatility spillover effects

Abstract

Purpose: The purpose of this paper is to examine the conditional correlations and spillovers of volatilities across CEE markets, namely, Hungary, Poland, the Czech Republic, Romania and Croatia, in the post-2007 financial crisis period. Design/methodology/approach: The authors use five-dimensional GARCH-BEKK alongside with the CCC and DCC models. Findings: The estimation results of the three models generally demonstrate that the correlations between these markets are particularly significant. Also, own-volatility spillovers are generally lower than cross-volatility spillovers for all markets. Practical implications: These results recommend that investors should take caution when investing in the CEE equity markets as well as diversifying their portfolios so as to minimize risk. Originality/value: Unlike the previous studies in this field, this paper is the first study using multivariate GARCH-BEKK alongside with CCC and DCC models. The study makes an outstanding contribution to the existing literature on spillover effects and conditional correlations in the CEE financial stock markets.