Finance & Accounting

The study aims to trace the influence between developed and developing capital markets in the context of the Efficient Market Hypothesis, taking into account the global financial crisis of 2008. In the study are used seven indices, two are representing developed markets -  the U.S. DJIA, the German DAX and the rest five - developing markets of Central and Eastern Europe (CEE) - Bulgarian SOFIX, Czech PXI, Hungarian BUX, Romanian BET and Russian RTS. Using daily returns from 2005 to 2012, we investigate the volatility co-movement between the U.S. and the German indexes on one side and the CEE indices on another. In order to do so we apply EGARCH model to market data deviated in three periods – Pre-crisis, Crisis and Post-Crisis.  In terms of correlation CEE indices can be divided in two - Czech, Hungarian, Romanian and Russian, showing a high correlation with the German index, and Bulgarian SOFIX demonstrating greater synchronicity with the U.S. index. This observation is confirmed for the three periods of study. Examining the volatility co-movement we can point out that the Hungarian, the Czech and the Russian indexes are clearly showing a leading role for their dynamics by the German index, for all studied periods. The Romanian index is showing a hesitating reaction to the deterministic influence of DJIA and DAX. For the Bulgarian index if there is a significant external influence, it is always by the DJIA. Regarding the reaction to the market impulses and information efficiency Bulgarian and Romanian indexes are clearly distinguished from the other studied CEE indexes. They showed disposition for faster and more sensitive reaction to negative market impulses, typical for the Crisis Period, in contrast to a moderate incorporation of the positive market impulses specific to the Pre-crisis Period.

KEY WORDS: Efficient-Market Hypothesis, EGARCH, volatility co-movement, information efficacy and asymmetry.

JEL:C 32, G01, G 14, G15

The functions of money as medium of exchange and unit of account are closely related to the problems of relative prices formation and the value of money itself. Rejecting the classical dichotomy, we can assume some interaction between the real and the monetary sectors. Following the new trends in monetary theory we focus on the nominal macroeconomic parameters. In particular, econometric research is carried out in order to reveal the relationship between the nominal GDP growth and the total credit in the countries of Central and Eastern Europe. The objective is to measure the level of dependency and the nature of the relationship between these important macroeconomic variables.

Recent developments in the economies of the CEE countries bring into question the validity of the twin deficit hypothesis since we observed combination of high current account deficits and prevailingly stable fiscal positions before the crisis and just the opposite combination after it. This paper analyses the theoretical foundations of the twin deficit hypothesis and the alternative explanations. Different econometric techniques are applied to test the validity of the different approaches on the basis of a panel data for CEE countries. OLS panel regression shows relatively modest positive connection between current account and fiscal deficits what confirms the twin deficit paradigm. On the other hand, the twin deficit hypothesis can be rejected in the case of Bulgaria and Estonia. The vector autoregressive analysis is also not compatible with the twin deficit hypothesis. Further research is necessary to overcome these contradictory results.

Recent developments in the economies of the CEE countries bring into question the validity of the twin deficit hypothesis since we observed combination of high current account deficits and prevailingly stable fiscal positions before the crisis and just the opposite combination after it. This paper analyses the theoretical foundations of the twin deficit hypothesis and the alternative explanations. Different econometric techniques are applied to test the validity of the different approaches on the basis of a panel data for CEE countries. OLS panel regression shows relatively modest positive connection between current account and fiscal deficits what confirms the twin deficit paradigm. On the other hand, the twin deficit hypothesis can be rejected in the case of Bulgaria and Estonia. The vector autoregressive analysis is also not compatible with the twin deficit hypothesis. Further research is necessary to overcome these contradictory results.

Recent developments in the economies of the CEE countries bring into question the validity of the twin deficit hypothesis since we observed combination of high current account deficits and prevailingly stable fiscal positions before the crisis and just the opposite combination after it. The paper starts with the analysis of the theoretical foundations of the twin deficit hypothesis and the alternative explanations about the relationship between current account and fiscal deficits. Different econometric techniques are applied to test the validity of diverse theoretical approaches on the basis of panel data for CEE countries. OLS panel regression shows relatively modest positive connection between current account and fiscal deficits what confirms the twin deficit paradigm. On the other hand, the twin deficit hypothesis can be rejected in the case of Bulgaria and Estonia. The vector autoregressive analysis is also not compatible with the twin deficit hypothesis. Further research is nec...

The functions of money as medium of exchange and unit of account are closely related to the problems of relative prices formation and the value of money itself. Rejecting the classical dichotomy, we can assume some interaction between the real and the monetary sectors. Following the new trends in monetary theory we focus on the nominal macroeconomic parameters. In particular, econometric research is carried out in order to reveal the relationship between the nominal GDP growth and the total credit in the countries of Central and Eastern Europe. The objective is to measure the level of dependency and the nature of the relationship between these important macroeconomic variables.

In the context of the last global financial crisis of 2008 and the subsequent post-crisis recovery of international capital markets, the question of the sustainability of that recovery process has been raised. To test that we use the presence and the magnitude of manifestation of market phenomena called volatility paradox. This paradox raises the question whether its presence in the conditions of the sustainable ascending market trend during the post-crisis recovery is not a signal marking the potential for a new forthcoming financial crisis. Studying the periods before and after the 2008 global financial crisis can give us a pattern market dynamics of volatility paradox manifestation in the pre-crisis period which can be traced out in the post-crisis period. If the existence of volatility paradox is possible, it should be seen in the pre-crisis period up to 2008. Its power of manifestation during this period should serve as a benchmark for verifying the post-crisis VP, both as an e...

The study aims to trace the influence between developed and developing capital markets in the context of the Efficient Market Hypothesis, taking into account the global financial crisis of 2008. In the study are used seven indices, two are representing developed markets – the U.S. DJIA, the German DAX and the rest five – developing markets of Central and Eastern Europe (CEE) – Bulgarian SOFIX, Czech PXI, Hungarian BUX, Romanian BET and Russian RTS. Using daily returns from 2005 to 2012, we investigate the volatility co-movement between the U.S. and the German indexes on one side and the CEE indices on another. In order to do so we apply EGARCH model to market data deviated in three periods – Pre-crisis, Crisis and Post-Crisis. In terms of correlation CEE indices can be divided in two – Czech, Hungarian, Romanian and Russian, showing a high correlation with the German index, and Bulgarian SOFIX demonstrating greater synchronicity with the U.S. index. This observation is confirmed for...

The study uses the GARCH models to estimate market efficiency of eleven stock markets from South East Europe (SEE) - Bulgaria, , Croatia, Greece, Serbia, Slovenia, Turkey, Romania, Montenegro, Macedonia, Banja Luka and Sarajevo (Bosnia and Herzegovina) over the period from 2005 to 2015 with the accent on the effect of the global financial crisis of 2008 on the market efficiency.  The results reveal that eight of eleventh of analyzed markets can be defined as market inefficient according to the Efficient Market Hypothesis (EMH) during the whole studied period. From pre-crisis to crisis period five of the SEE indices worsen their market efficiency in the terms of the weak form of the EMH. The group of indices with relatively high market efficiency during the post-crisis period is the largest one in comparison with the previous periods. All things considered, it seems reasonable to assume that SEE markets aren’t homogeneous and uniform in the contest of EMH.

This research aims to visualize the “impossible trilemma”, i.e. the impossibility of simultaneously having a fixed exchange rate, free movement of capital and an independent monetary policy, for every economy through the application of artificial intelligence software. The advantages of visualization techniques are revealed. The explored countries are divided into the following panels: the Eurozone countries, the developed European countries (DEC), the developed non-European countries (DNEC), the BRICS countries (Brazil, Russia, India, China and South Africa), the developing European countries and the Organization of the Petroleum Exporting Countries (OPEC). The results of the research show a great level of confirmation of the trilemma for the developing economies and the developed non-European countries. This implies that there is a compromise between exchange rate stability, monetary independence, and free capital mobility.