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Acta Oeconomica
Authors: Milica Latinovic, Vesna Bogojevic Arsic, and Milica Bulajic

This article examines volatility spillover among Western Balkan’s stock markets and selected developed markets. If there is an evidence of weak linkage between various markets, then there are potential benefits that could arise from international diversification. However, if we analyse the relationship between two markets that are different in terms of their economic development, and if there is a strong connection between them, market shocks from the developed markets can have an impact on the frontier/emerging markets. Market integration can be indicated with returns linkage and transmission of shocks and volatility between markets. Hence, this can have implications for investment strategies. It is found that there is statistically significant regional spillover between countries of the Western Balkan region. Also, there is global spillover between developed markets and this region as well. Furthermore, there is evidence that Western Balkan’s markets are late in response to important market events, and that can be used when formulating investment strategy.

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This study investigates the transmission mechanism of price and volatility spillovers across the Budapest, Warsaw, Prague, Bucharest, and Zagreb stock markets in the pre- and post-financial crisis periods under the framework of the multivariate Exponential Generalized Autoregressive Conditional Heteroskedasticity (EGARCH) model. By using daily closing prices, the results highlight certain interesting findings. I found evidence of price spillovers of the intraregional linkages among the stock price movements in five countries. This analysis shows the existence of bi-directional volatility spillovers between stock markets of the Czech Republic and Croatia in the pre-crisis period, and between Hungary and Romania in the post-crisis period. Also, there are significant volatility spillovers from Croatia to Poland and from Poland to the Czech Republic during two periods. The volatility is found to respond asymmetrically to innovations in other markets. The findings also indicate that the stock markets are more substantially integrated into crisis, as well as the persistence of volatility spillovers between the stock markets increases, and the financial stock markets become more integrated after the crisis period.

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Acta Oeconomica
Authors: Francisco Jareño, María de la O González, Marta Tolentino, and Sara Rodríguez

This paper studies the sensitivity of share prices of Spanish companies included in the IBEX-35 to changes in different explanatory variables, such as market returns, interest rates and factors proposed by Fama and French (1993, 2015) between 2000 and 2016. In addition, for robustness, this paper analyses whether the sensitivity of stock returns is different between two periods: precrisis and recent financial crisis. The results confirm that, in general, all the considered factors are relevant. Furthermore, “market return” and “size” factors show greater explanatory power, together with the “value” factor in the crisis period. Regarding the analysis at sector level, “Oil and Energy”, “Basic Materials, Industry and Construction” and “Financial and Real Estate Services” sectors appear to be highly sensitive to changes in the risk factors included in the asset pricing factor model.

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The risk of individual investment in higher education is not a well-researched topic compared to the rate of return to education. In many countries tuition fees are low, but there is a possibility to borrow for investment in education. This can lead to irresponsible investment behaviour. The paper will show that the student loan market is too small to cause a macroeconomic crisis, but that it is a market with many stakeholders and irresponsible behaviour should not be encouraged. With the examination of a Hungarian sample, it can be concluded that in the context of higher education, signs of rational investment behaviour can be found. The risks of post-secondary studies are not yet fully understood and measured, and for this reason further research is suggested.

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The literature has not settled down on safe haven property of gold in the emerging and developing countries. Therefore, we revisit the international evidence on hedging and safe haven role of gold for 34 emerging and developing countries with a span of daily data covering January 2000–November 2018. We employ the GARCH-copula approach to estimate the lower-tail extreme dependencies of the joint distribution of gold and equity returns. We also introduce a new definition for the strong safe haven property of an asset. Our findings indicate that while gold serves as a hedging instrument for all countries in our sample, we got evidence of weak safe haven property for gold, for domestic investors, only in 20 countries, and a strong safe haven asset (SHA) only in 9 countries.

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This paper analyses the pricing of sovereign risk and contagion during the crises in the Central and Eastern European countries. Panel data are used to estimate the determinants of government bond spreads in three different time periods: before the crisis, during the global financial crisis, and during the European debt crisis. The econometric model includes interactions between the explanatory variables and the crisis dummies. This specification enables the coefficients to change during the crises. The empirical analysis confirms a statistically significant relationship between sovereign risk and macroeconomic fundamental variables. Additionally, the results suggest an increase in the importance of macroeconomic fundamentals during the financial crisis. The analysis also supports that sovereign credit ratings and exchange rate risk have a significant impact on government bond spreads.

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Rating the reliability of banks has always been an important practical problem for businesses and the economic policy makers. The best way to do this is the CAMEL analysis. The aim of this paper was to create a bank-rating indicator from the five fields of the CAMEL analysis using two-two indicators for each field for the Turkish Islamic banking system. According to the results of the analysis, we could rank the Turkish Islamic banks. Beside the widespread use of the CAMEL analysis, we applied the Similarity Analysis as a new method. We compared the results from the two methods and came to the conclusion that the CAMEL analysis does not adequately provide a fairly shaded picture about the banks. The Component-based Object Comparison for Objectivity (COCO) method gave us the yearly results in time series form. The comparison of the time series data leads to the problem of deciding about what is more important for us – average, standard deviation or the slope. For handling this problem, we used Analytic Hierarchy Process, which gave weights to these indicators.

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Looking back to the global financial crisis of 2008–2009, Hungary was among the first countries to be forced to make use of financial assistance from the EU and the IMF. The government, the MNB (the central bank of Hungary) as well as the domestic and foreign analysts cited the high public debt and the volume of unsecured foreign-currency loans as the main reasons for the crises. Though these were real weaknesses, this diagnosis was false as much as the following treatment. First and foremost, it was the inadequate level of foreign exchange reserves that made Hungary to request outside financial assistance.

The excessive fiscal tightening urged by the MNB only led to deepening of the crises. In general, the macropolicy – both fiscal and monetary policy – before, during and after the crises turned out to be painfully pro-cyclical. Due to the lack of sufficient reserves, the MNB became virtually powerless to intervene and could only watch from the side-lines as events unfolded. The orthodox mind-set after replenishing the forex reserves prevented it from implementing a broad scale of unconventional measures to ease the crises. The fiscal authority lost its capacity long before to reduce the severity of the crises. Thus, the excessive and incorrect structure of fiscal correction coupled with an unjustified orthodox monetary policy, the contraction of the Hungarian economy went much beyond the inevitable amount.

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The main goal of this paper is a quantitative identification of bear market periods during the 2007–2009 global financial crisis in the case of the Visegrad Group stock markets. We analyse four countries, namely Poland, the Czech Republic, Hungary, and Slovakia and, for comparison, the US stock market. The sample period begins on May1, 2004, and ends on April 30, 2013, i.e. it includes the 2007 US subprime crisis. We use the statistical method of dividing market states into bullish and bearish markets. Our results reveal October 2007–February 2009 as the common downmarket period of the recent global financial crisis, except for Slovakia. It is instructive to formally identify crises, as it enables sensitivity analyses of various relationships and linkages among international stock markets using econometric and statistical tools, with respect to the pre-, post- and crisis periods. Moreover, we investigate the effect of increasing cross-market correlations in the crisis compared to the pre-crisis period, applying both standard contemporaneous correlations and volatility-adjusted correlation coefficients. The results confirm that accommodating heteroskedasticity is critical for detecting contagion across economies. A number of studies document that crossmarket correlations vary over time, thereby making the benefits of international portfolio choice and diversification questionable.

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The sovereign debt crisis of 2010 in the euro area significantly decelerated the monetary integration of the EU. The main purpose of this paper is to explore whether five post-communist member states of the EU are mature enough to adopt the euro. We used nominal exchange rates in the error correction model with asymmetric power ARCH (ECM-APARCH). Our results highlight that EU membership positively increased the impact of the euro on the currency of each of these countries in the short-run. In contrast, the long-term effect of the euro on each currency is negative for the Czech Republic, Hungary, and Croatia. Wholly different results were obtained for Poland and Romania. The APARCH model showed that the negative responses of the euro had a greater or neutral effect on the conditional variance of each currency instead of the positive responses. The debt crisis of the euro area had no impact on the dynamic linkages between the currencies. Our research concludes that Croatia, the Czech Republic, and Hungary are not ready to join the euro area in the near future. On the other hand, the currencies of Poland and Romania are already aligned with the fluctuations of the euro.

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