Integration of Macedonian, Bulgarian and Croatian Stock Markets – VECM Approach
Integration of Macedonian, Bulgarian and Croatian Stock Markets – VECM Approach

Summary/Abstract: At the end of March 2016, regional platform CEE link was established by three Balkan bourses from Macedonia, Bulgaria and Croatia. This platform provides investors from these countries possibility to buy and sell securities listed on the three bourses. The purpose of this paper is to investigate the linkages between Macedonian, Bulgarian and Croatian stock market indices. If they move together or there is common trend, then investors cannot gain portfolio diversification on this regional platform. Using Johansen Vector Error Correction Model (VECM) on data sample from January 3rd, 2005 to December 30th, 2015 the existence of long and short term relationships between the Macedonian and the Bulgarian and Croatian stock markets are detected. These findings can be limit to the benefits of equity portfolio diversification for Macedonian investors. Bilateral Co-integration test between Croatian and Bulgarian stock markets did not detect common trend that links these two stock markets. So investors from Macedonia cannot make diversification buying stocks on the Croatian and Bulgarian stock markets and vice versa, while Croatian and Bulgarian investors can diversify their portfolios by trading stocks listed on the Bulgarian and Croatian Stock Exchanges. The results are of particular interest for investors, portfolio managers and policymakers.

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