Co-Movements and Interactions between Segments of Parallel Markets: The Case of the Czech Republic
CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute); Charles University in Prague; Academy of Sciences of the Czech Republic; Centre for Economic Policy Research (CEPR)
December 1, 1997
CERGE-EI Working Paper Series No. 122
In the present paper we concentrate on interactions, co-movements and the sharing of information signals between the organized (and parallel) markets in the Czech Republic. In particular, the lead-lag relationship between the Prague Stock Exchange (PSE) and the RMS (over the counter system) is studied to identify the leaders and followers in the information transmission process. The analysis shows that the PSE holds the leading position in the the main market of actively traded stocks, but the RMS dominates on segments with lower liquidity. These links did not exist during the early history of both markets, and they have become stronger as time proceeds. The analysis of the intra-market relations also confirms that liquid segments play a leading role in both the PSE and the RMS. Due to the fact that some links between parallel market segments are missing, we conclude that the PSE and the RMS do not yet behave as a fully integrated market.
Number of Pages in PDF File: 20
Keywords: co-movements of financial markets, emerging markets, Granger causality, integration of emerging markets, lead-lag relationship.
JEL Classification: D40, E44, G12, G14.
Date posted: January 23, 2010
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