Stock Market Volatility Changes in Central Europe Caused By Asian and Russian Financial Crises

Abstract

We consider four Central European stock market indexes over the period April 30, 1996 - August 31, 2001. We have found that the influence of the Asian crisis over the Central European markets is more severe than this of the Russian crisis. During the crises the Central European markets exhibit an increase in correlation and a decrease afterwards. We have found that the correlation never reaches pre-crisis level. We have found increasing persistence for Central European markets not only during the crisis but also during the postcrisis period. After the crisis, the market reaction is much weaker to the current market news than to the past information. Investigating the relationships between stock volatility and expected returns, we do not prove positive relation. During the crisis periods the relationship is positive and thus compensating risk-averse investors.

Keywords: Central and Eastern Europe, Stock Markets, Financial Crises, Market Volatility, GARCH

JEL Classification: C32, G15, N20