The European Union Portfolio-Diversification Opportunities in the New Members vs. the Candidate: Turkey (original) (raw)
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The Manchester School, 2011
The advent of the European Union has decreased the diversification benefits available from country based equity market indices in the region. This paper measures the increase in stock integration between the three largest new EU members (Hungary, the Czech Republic and Poland who joined in May 2004) and the Euro-zone. We allow for a potentially gradual change in correlation between stock markets, which seems particularly appropriate to analyse the increasing integration between the Eastern European and the Euro-zone stock markets over the recent years. At the country market index level all three Eastern European markets show a considerable increase in correlations in 2006. At the industry level the dates and transition periods for the correlations differ, and the correlations are lower although also increasing. The results show that sectoral indices in Eastern European markets may provide larger diversification opportunities than the aggregate market.
International Portfolio Diversification: Evidence from European Emerging Markets
EUROPEAN RESEARCH STUDIES JOURNAL, 2009
This paper examines the short-term and long-term relationships among eight European stock markets from 2000 to 2008. Three of these markets are considered mature: Euronext, Germany and Greece. The remaining five are considered emerging: Bulgaria, Cyprus, Romania, Slovenia and Turkey. We apply exhaustive statistical and econometric tests together with long-run cointegration and correlation analyses that yield mixed results concerning the markets' relationships. We switch to a dynamic model of different interval moving averages, comparing the outcomes and revealing the individual characteristics of each market. The results are robust to sensitivity analysis based on partitioning the sample into multiple sub-periods and on translating indices to the Euro, the common currency for practically all of the markets. In addition, the Euronext and Germany stock exchanges serve as benchmarks and each equity market is examined from their point of view. Evidence shows that equity integration is existent, making international portfolio diversification less effective.
The objective of this paper is to examine the short and long-term relationships between the seven developed equity markets and three Central European emerging equity markets of Czech-Republic, Hungary and Poland in order to study their implications on the potential gains from international diversification in these emerging markets. The short-term relationships measured by the correlation matrix indicate a lower level of correlation between developed and emerging equity markets of Central Europe. In order to carry out the long-term relationships we resorted to Johansen cointegration techniques recently developed. The tests show that there is no long-term relationship between G7 developed equity markets and Central European emerging equity markets. Theses results indicate that the increase of financial integration degree and co-movement between equity markets has not significantly affected the expected benefits from international diversification in these emerging markets. These gains ...
1997
In this paper, we study the benefits derived from international diversification of stock portfolios from Hungarian as well as German point of view. The Hungarian Stock Exchange is an emerging market in contrast to the German capital market which is one of the largest markets in the world. In an ex post perspective the benefits from internationally diversified portfolios for Hungarian investors accrue only in terms of reduction in risk while for German investors also in terms of higher expected returns. By examining the performance of several ex ante strategies the paper also presents evidence on the benefits from international diversification for both countries. The strategies considered are the equally weighted (EQW), the minimum variance (MVP), the tangency (CET) and an equally risky portfolio as the domestic one (ERP). To evaluate the performance of the strategies, portfolio adjustment costs are taken into consideration. Because of the instability of sample mean returns, the Bayes-Stein transformation was applied to estimate the expected returns on portfolios. A theoretical finding of this paper is that in the case of our ERP strategy the Bayes-Stein estimation gives the same portfolio weights as the sample mean vector. So, no improvement in portfolio performance could be expected by combining the Bayes-Stein estimation technique with the ERP strategy.
Opportunities for International Portfolio Diversification in the Balkans’ Markets
This paper examines long and short-run relationships among three emerging Balkan stock markets (Romania, Bulgaria and Croatia), two developed European stock markets (Germany and Greece) and United States (U.S.), during the period 2000 - 2005. We apply Johansen's (1988) co-integration methodology to test the long-run relationships between these markets and Granger's (1969) causality methodology in order to capture short-run co-integration. Our findings are mixed. We provide evidence on long-run relationships between the Bulgarian and Croatian stock markets and the developed markets. On the other hand, there is no any co-integration among the developed markets and the Romanian market. Moreover, there is no co-integrating relationship among the three regional emerging markets, while short-run relationships exist only among the region. These results have crucial implications for investors regarding the benefits of international portfolio diversification.
The Impact Of Eu Integration On The Risk-Return Trade-Off Of European Diversified Portfolios
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The increase in international economic integration in the past decades, fueled by the amplified trade and financial flows around the world changed the size and scope of benefits that international investors may obtain from holding diversified portfolios. Our paper investigates the impact of increased capital market co-movements between emerging and developed markets from European Union, in the following directions: (1) analysis of cross-market correlations and identification of trends in cross-market correlations; (2) analysis of the risk-return performance of European portfolios formed of developed and emerging markets assets. Our approach attempts to investigate whether a diversified portfolio on a European basis, which includes developed and emerging EU markets, offers euro-based investors a better risk and/or return as compared to a purely developed EU markets portfolio. If this were true, then EU emerging markets represent diversification opportunities for eurobased investors.
Portfolio Diversification in the South-East European Equity Markets
South East European Journal of Economics and Business
Diversification potential enables investors to manage their risk and decrease risk exposure. Good diversification policy is a safety net that prevents a portfolio from losing its value. A well-diversified portfolio consists of different categories of property with low correlations, while highly correlated markets have the feature of low possibilities for diversification. The biggest riddle in the world of investments is to find the optimal portfolio within a set of available assets with limited capital. There are numerous studies and mathematical models that deal with portfolio investment strategies. These strategies take advantage of diversification by spreading risk over several financial assets. Modern portfolio theory seeks to find the optimal model with the best results. This paper tries to identify relationships between returns of companies traded in South-East European equity markets. A Markowitz mean-variance (MV) portfolio optimization method is used to identify possibiliti...
Opportunities for international portfolio diversification in the
2012
This paper examines long and short-run relationships among three emerging Balkan stock markets (Romania, Bulgaria and Croatia), two developed European stock markets (Germany and Greece) and United States (U.S.), during the period 2000-2005. We apply Johansen's (1988) cointegration methodology to test the long-run relationships between these markets and Granger's (1969) causality methodology in order to capture short-run cointegration. Our findings are mixed. We provide evidence on long-run relationships between the Bulgarian and Croatian stock markets and the developed markets. On the other hand, there is no any cointegration among the developed markets and the Romanian market. Moreover, there is no cointegrating relationship among the three regional emerging markets, while short-run relationships exist only among the region. These results have crucial implications for investors regarding the benefits of international portfolio diversification.
Cross Country Stock Market Integration and Portfolio Diversification Opportunities
This study examines Cross country sectoral Stock market integration and diversification opportunities in developed and emerging countries. For this purpose, we select 11 common sectors of 10 developed and 6 emerging countries. Daily data of FTSE sectoral indices from 3rd January 2000 to 29th October 2019 is included for testing the underlying objective. We constructed a panel of the only country-level stock of home country from selected developed and emerging countries denoted with Pjt and find out the relationship with only sectoral data of home country denoted as Pit. Panel cointegration and VECM are applied to test the stock market integration and long & short-run linkages between sectoral and country-level indices to identify international investors' diversification of opportunities. In developed countries, Australia, Finland, Germany, and the USA have long-run diversification opportunities. In emerging countries, only China and Turkey have long-run diversification opportunities and Brazil, Poland, and Turkey in short run.