Volatility Spillover Effect in the Context of European Union Enlargement. Case Study of Equity and FX Market in Czech Republic, Hungary and Poland.
Abstract: In this paper the spillover process between developed and emerging economies in the European Union (EU), as well between emerging markets only, is analysed with focus on volatility spillover effect. Equity and foreign exchange markets are considered. Among emerging economies three most developed Central and Eastern European Countries (CEEC) are investigated: Czech Republic, Hungary and Poland. After application of two models based on AR(1)-GARCH(1,1) process, generally the evidence for still limited level of the integration between “new” and “old” European Union countries is found before and after May 1st, 2004. The same tendency is apparent in the relations only between CEECs, however with visible interdependence of Hungarian and Polish markets. Short complementary analysis in form of regime switching process estimation partly confirms above-mentioned findings.
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