Intraday Price Discovery in Emerging European Stock Markets
CERGE-EI Working Paper No. 382
40 Pages Posted: 14 Aug 2009
Date Written: February 1, 2009
We characterize the price discovery in three emerging EU stock markets — the Czech Republic, Hungary, and Poland — by employing high-frequency five-minute intraday data on stock market index returns and four classes of EU and U.S. macroeconomic announcements during 2004–2007. We account for the difference of each announcement from its market expectation and we jointly model the volatility of the returns accounting for intra-day movements and day-of-the-week effects. Our findings show that real-time interactions on the new EU markets are strongly determined by matured stock markets as well as the macroeconomic news originating thereby. Monetary news has virtually no impact on stock returns while U.S. prices affect all three markets. The real economy announcements have varying effects but the news on the EU current account affects all three markets in a uniform manner. Only some EU economic climate and confidence announcements affect stock returns. In general, differences in results across markets are driven by differences in key market participants. Volatility of the returns is accounted for at the beginning and end of the trading session and it declines dramatically during the rest of the day. All three markets also show a decrease in volatility by the middle of the business week. Our findings yield insights into the process of stock market integration in the EU as well as portfolio allocation on the new EU markets.
Keywords: price discovery, stock markets, intra-day data, macroeconomic news, European Union, volatility, excess impact of news
JEL Classification: C52, F36, G15, P59
Suggested Citation: Suggested Citation