The dynamics of Central European equity market comovements

Claire G. Gilmore, Brian M. Lucey () and Ginette M. McManus

The Quarterly Review of Economics and Finance, 2008, vol. 48, issue 3, pages 605-622

Abstract: This paper examines short-term and long-term comovements between developed European Union (EU) stock markets and those of three Central European (CE) countries which recently joined the EU. Dynamic cointegration and principal components methods are applied, in addition to static tests. While we find no evidence of cointegration for the period July 1995-February 2005 as a whole, dynamic tests reveal alternating period of cointegration disrupted by episodes dominated by short-term domestic factors. Principal components analysis reveals that a stable factor explains a large proportion of return variances. Ultimately, despite the decade-long process of alignment by CE countries with the EU, evidence of steadily increasing convergence of equity markets is lacking.

Date: 2008
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