International stock market integration of emerging Europe : analyses from aggregate level to firm level, from tranquil periods to shock periods

This thesis contains 3 empirical chapters with relevance to the ‘international stock market integration’ literature. The first chapter aims to investigate the evolution of the international integration of emerging European stock markets with the world market for the period of 1996 to 2011. For this purpose, using dynamic conditional correlation approaches, the changes that occur in correlation (integration) levels due to four global/regional incidents: i) the 1998 Russian crisis; ii) the 2001 dotcom crisis and the 9/11 shocks; iii) the 2004 EU enlargement; and iv) the 2007-2009 global financial crisis are examined. The findings show that the volatilities of emerging European stock markets and their correlation structures with the world market significantly change due to the impacts of global/regional incidents. Although it is obvious that each incident has a differential impact on each country depending on the internal dynamics of those countries at the times of incidents, the findings still clearly reveal the general common impacts of the investigated incidents on the volatilities and the correlation structures of the sample countries with the world market. The second chapter investigates the international stock market integration phenomenon at a disaggregated level for emerging European countries. For this purpose, by using the Geweke technique (1982) the world market integration levels of individual companies, namely ‘individual stock integrations’ are measured. Furthermore, by using firm specific and industry level variables, the year to year changes in integration levels are explained to identify the determinants of an individual level stock integration. The results confirm the presence of individual stock integration since each company is integrated with the world market at different level of strength. Furthermore, panel data analysis shows that it is possible to explain those differences on the individual integration levels with both company specific variables and industry level variables. Comparing tranquil and shock periods’ heteroscedasticity corrected conditional correlations and dynamic conditional correlations; the final chapter tests the widely accepted belief of the significance of a ‘contagion effect’ from the US to emerging European countries during the latest global financial crisis. The chapter reveals that although the contagion effect is the most blamed factor for the propagation of financial crises, particularly for the last global financial crisis, the presence of contagion effect from the US market (crisis-origin country) is not that certain since the conclusion is highly dependent on econometric specifications and sample period diversifications.