The Relationship between Economic Factors and Equity Markets in Central Europe

Posted: 12 Jun 2001

See all articles by Jan Hanousek

Jan Hanousek

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)

Randall K. Filer

City University of New York, CUNY Hunter College - Department of Economics; Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute); University of Michigan at Ann Arbor - The William Davidson Institute; CESifo (Center for Economic Studies and Ifo Institute)

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Abstract

This paper investigates the possibility that newly-emerging equity markets in Central Europe exhibit semi-strong form efficiency such that no relationship exists between lagged values of changes in economic variables and changes in equity prices. We find that while there are connections between the real economy and equity market returns in Poland and Hungary, these links occur with lags, suggesting the possibility of profitable trading strategies based on public information and rejecting semi-strong efficiency. For the Czech Republic the situation is more complex. In recent periods, little connection exists between lagged economic variables and equity market returns. Although this finding might be viewed as consistent with semi-strong efficiency, in fact there is also little connection between current economic values and stock prices in the Czech Republic. Thus, instead of processing information efficiently, the Czech market appears to be entirely divorced from the real world. It is suggested that the difference in the current status of these markets may be due to the different methods by which they were created.

Keywords: Semi-strong efficiency, emerging markets, Granger causality

JEL Classification: E44, G15, O16

Suggested Citation

Hanousek, Jan and Filer, Randall K., The Relationship between Economic Factors and Equity Markets in Central Europe. Available at SSRN: https://ssrn.com/abstract=264817

Jan Hanousek (Contact Author)

CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute) ( email )

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Randall K. Filer

City University of New York, CUNY Hunter College - Department of Economics ( email )

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