Russian Equity Market Linkages Before and After the 1998 Crisis: Evidence from Time-Varying and Stochastic Cointegration Tests

43 Pages Posted: 26 Jul 2007

See all articles by Brian M. Lucey

Brian M. Lucey

Trinity Business School, Trinity College Dublin; Ho Chi Minh City University of Economics and Finance; Jiangxi University of Finance and Economics

Svitlana Voronkova

Centre for European Economic Research (ZEW)

Date Written: October 20, 2005

Abstract

This paper examines the relationships between the Russian and other Central European (CE) and developed countries' equity markets over the 1995-2004 period. Along with the traditional Johansen and Juselius (1990) multivariate cointegration tests, we apply novel cointegration approaches, including Gregory-Hansen (1996) test, which allows for a structural break in the relationships, as well as the newly developed stochastic cointegration test by Harris, McCabe and Leybourne (2002) and the non-parametric cointegration method of Breitung (2002). The latter tests point to a significant agreement that in the aftermath of the Russian crisis of 1998 there was an increasing degree of comovements of the Russian market with other developed markets, but not with CE developing markets. This result is further confirmed by dynamic conditional correlation modeling, which allows us to investigate graphically the evolution of comovements in the system. The results of detailed cointegration analysis suggest a. that the time-varying nature of equity markets comovements should be explicitly accounted for while modeling long run relationships b. that there is a decline in diversification benefits for foreign investors seeking to invest in Russian equities over the long horizon.

Keywords: stock market integration, CEE stock markets, Russian stock market, cointegration

JEL Classification: G10, G15

Suggested Citation

Lucey, Brian M. and Voronkova, Svitlana, Russian Equity Market Linkages Before and After the 1998 Crisis: Evidence from Time-Varying and Stochastic Cointegration Tests (October 20, 2005). BOFIT Discussion Paper No. 12/2005, Available at SSRN: https://ssrn.com/abstract=1002907 or http://dx.doi.org/10.2139/ssrn.1002907

Brian M. Lucey (Contact Author)

Trinity Business School, Trinity College Dublin ( email )

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Ho Chi Minh City University of Economics and Finance ( email )

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Ho Chi Minh City, Ho Chi Minh 70000
Vietnam

Jiangxi University of Finance and Economics ( email )

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China

Svitlana Voronkova

Centre for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

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