Final Activity Report Summary - EMICEE (Equity market integration in Central and Eastern Europe.)
In this project, we investigate the degree and time variation in the degree of equity market capitalisation in Central and Eastern European equity markets.
We collect a unique dataset which allows us to test for the degree in market integration in a much more detailed way than previous studies have done. Our dataset contains self-made equity market indices, liquidity indicators, sector and firm concentration measures, financial development indicators, measures of economic openness and development, as well as various indicators of corporate governance, political stability, etc. In addition, for each country, we make a time-line of events that could be important for our study, such as for instance dates when a major change in ownership protection is introduced. We find that our equity indices are often quite different from those from Datastream and MSCI, which are largely biased to (very) large stocks. Interestingly, differences are also large between Datastream and MSCI, making the choice of a particular index a non-trivial issue. In most other indicators, such as liquidity and concentration, we see a general improvement until 1998, after which many indictors start to decrease again. Most markets have not completely recovered. Many markets, such as the Russian one, have a large number of cross-listed stocks, which may be either contributing to further integration,
Consequently, we develop a new empirical model that allows us to estimate the effect of a large set of instruments on the degree of market integration. Our integration measure of the exposure of local equity return shocks to innovations in US, European, and Russian equity returns, yielding one measure of global and two measures of regional integration.
We collect a unique dataset which allows us to test for the degree in market integration in a much more detailed way than previous studies have done. Our dataset contains self-made equity market indices, liquidity indicators, sector and firm concentration measures, financial development indicators, measures of economic openness and development, as well as various indicators of corporate governance, political stability, etc. In addition, for each country, we make a time-line of events that could be important for our study, such as for instance dates when a major change in ownership protection is introduced. We find that our equity indices are often quite different from those from Datastream and MSCI, which are largely biased to (very) large stocks. Interestingly, differences are also large between Datastream and MSCI, making the choice of a particular index a non-trivial issue. In most other indicators, such as liquidity and concentration, we see a general improvement until 1998, after which many indictors start to decrease again. Most markets have not completely recovered. Many markets, such as the Russian one, have a large number of cross-listed stocks, which may be either contributing to further integration,
Consequently, we develop a new empirical model that allows us to estimate the effect of a large set of instruments on the degree of market integration. Our integration measure of the exposure of local equity return shocks to innovations in US, European, and Russian equity returns, yielding one measure of global and two measures of regional integration.