Conditional Contemporaneous Correlations among European Emerging Markets

Abstract

The biggest enlargement of the European Union (EU) took place in May 2004 when 10 new countries (Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia) joined the union, increasing the number of member states from 15 to 25. Of these newcomers, eight are former Eastern European countries with transition to Western-type market economies. These emerging markets provide increasingly growing investment opportunities and international diversification options for fund managers and individual investors. Well-known features of emerging equity markets are high returns, high volatility, and low correlation with developed markets. Bekaert and Harvey (2002) find that this correlation is on average increasing, particularly for those emerging markets that have liberalised their financial markets. Mateus (2004) finds similar results with EU access countries for recent years. Additional features of emerging markets are sparse data, low liquidity, and large price changes due to political changes or market crashes (e.g. Hwang & Pedersen, 2004).

Citation

Pynnönen, S. (2006), "Conditional Contemporaneous Correlations among European Emerging Markets", Batten, J.A. and Kearney, C. (Ed.) Emerging European Financial Markets: Independence and Integration Post-Enlargement (International Finance Review, Vol. 6), Emerald Group Publishing Limited, Leeds, pp. 325-351. https://doi.org/10.1016/S1569-3767(05)06013-9