Portfolio Diversification and Liquidity Spillover Opportunities Among the Stock Markets of Macedonia, Bulgaria and Croatia

15 Pages Posted: 16 Apr 2020

See all articles by Vladimir Filipovski

Vladimir Filipovski

affiliation not provided to SSRN

Saso Arsov

Ss. Cyril and Methodius University - Facuty of Economics

Date Written: November 23, 2016

Abstract

We analyze the potential implications of the regional integration of three stock markets: Macedonian, Croatian and Bulgarian stock exchanges. The first implication is related to the potential for risk diversification which may improve return per unit of risk earned by investors on these markets. In this context, we calculate returns, volatilities and correlation coefficients for the indexes of the three markets. Then, we present the effect of investments in notional portfolios constructed as combinations of three stock market indexes. Such analysis indicates that there is a potential for risk diversification in such portfolio investments. The second implication concerns market liquidity spillovers across the three market. As these are relatively illiquid markets, one may question the potential of market integration to bring increased levels of turnover, i.e. liquidity. The Vector Auto Regression (VAR) analysis has been used to explore the existence of any intertemporal relationships between market liquidity, returns and volatility among the three markets. The VAR analysis indicates that illiquidity of those markets do not influence stock returns and their volatilities. Also, the returns on the Bulgarian stock market seem to have the greatest impact on the other variables so that the investors from the region should be observing the trends on this market very closely.

Keywords: stock markets, risk diversification, stock market liquidity, stock market integration, stock returns, stock return volatility

JEL Classification: G110, G120, G150.

Suggested Citation

Filipovski, Vladimir and Arsov, Saso, Portfolio Diversification and Liquidity Spillover Opportunities Among the Stock Markets of Macedonia, Bulgaria and Croatia (November 23, 2016). Available at SSRN: https://ssrn.com/abstract=3559463 or http://dx.doi.org/10.2139/ssrn.3559463

Vladimir Filipovski

affiliation not provided to SSRN

Saso Arsov (Contact Author)

Ss. Cyril and Methodius University - Facuty of Economics ( email )

Bul. Krste Miriskov bb
Skopje, 1000
Macedonia

HOME PAGE: http://www.eccf.ukim.edu.mk

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