Original scientific paper
https://doi.org/10.1080/1331677X.2019.1675525
The role of the macroeconomic environment in shaping capital market co-movement in C.E.E. countries
Mihaela Onofrei
; Department of Finance, Money and Public Administration, Faculty of Economics and Business Administration, Alexandru Ioan Cuza University of Iaşi, Iaşi, Romania
Dumitru Nicușor Cărăușu
; Department of Finance, Money and Public Administration, Faculty of Economics and Business Administration, Alexandru Ioan Cuza University of Iaşi, Iaşi, Romania
Dan Lupu
; Department of Finance, Money and Public Administration, Faculty of Economics and Business Administration, Alexandru Ioan Cuza University of Iaşi, Iaşi, Romania
Abstract
This article revisits the relationship between the contagion and co-movement of 10 Central and Eastern European (C.E.E.) financial markets in relation to two major Western European capital markets using wavelet-based methodology. Based upon an A.R.D.L. panel model we found that foreign monetary policy, national exchange rate and economic cycle play a key role in both short and long-term co-movement between capital markets. While a stable economic environment coupled with a strong national currency can reduce the degree of short-term co-movement between capital markets, changes in foreign monetary policy could increase the effect of external shocks. Furthermore, we find that inflation, foreign exchange rate and foreign economic cycle play an important role after longer periods. By ensuring a stable economic environment national authorities can help mitigate the effects of external shocks on national capital markets.
Keywords
wavelet analysis; A.R.D.L. model; contagion; co-movement; Central and Eastern European (C.E.E.) countries
Hrčak ID:
229737
URI
Publication date:
22.1.2019.
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