Guest editorial

Citation

Koutmos, G. (2007), "Guest editorial", Managerial Finance, Vol. 33 No. 3. https://doi.org/10.1108/mf.2007.00933caa.001

Guest editorial

The European financial markets have undergone through truly revolutionary changes in the last few years. Instrumental to these changes have been the introduction of the common currency, the Euro and the liberalization of goods and labor markets. These changes have produced new opportunities and new challenges for market researchers, investors and regulators. The papers in this volume provide some new information and new empirical findings on various important aspects of European financial markets.

The study by Antoniou, Pesceto and Stevens provides an interesting analysis of the conditional correlation dynamics and volatility spillovers across European and US stock markets from the perspective of the UK investor. The authors use a dynamic conditional correlation model to estimate conditional correlations between the UK, USA and European stock markets and selected sectors. It is found that all correlations have increased over the sample period. Moreover, correlations are higher during bear markets and tend to fall during market advances. These findings have important implications for international portfolio diversification and the stability of the markets.

The paper by Yildirim and Philippatos, deal with the evolution of competitive conditions in the banking industries of Central and Eastern European (CEE) transition economies. The analysis utilizes firm-level data and findings suggest that the banking markets of CEE countries cannot be characterized by either perfect competition or, monopoly, with minor exceptions. A temporal analysis shows a higher degree of competition in later years of the sample period.

Koutmos and Philippatos use a nonlinear model to capture asymmetric price adjustments in the Athens Stock Exchange. The model is consistent with the hypothesis that price adjustment costs are asymmetric. The evidence presented suggests that positive past returns are more persistent than negative past returns. Such a behavior is consistent with the notion that information suggesting overpricing is incorporated faster than information suggesting underpricing.

Utilizing a logit-type regression model, Knif and Pynnomen analyze the incremental effect of volatility on the level of correlation using data from the European, North American and Asian stock markets. The empirical findings support the notion that increasing volatility tends to increase the conditional correlation across markets. More specifically, correlations depend on world-wide volatility rather than local volatilities.

The relationship between volatility and autocorrelation in major European stock index futures is investigated in the paper by Katsikas. The evidence presented points to a negative relationship between volatility and autocorrelation. In addition, volatility itself is asymmetric rising proportionately more in response to price advances compared to price declines, suggesting that return dynamics are similar across asset categories.

Gregory Koutmos