Assessment of Changes in the Trend of Interdependences between the Capital Market of Germany and the Markets of Poland, the Czech Republic and Hungary
Assessment of Changes in the Trend of Interdependences between the Capital Market of Germany and the Markets of Poland, the Czech Republic and Hungary

Author(s): Marek Zineker, Edyta Łaszkiewicz, Tomáš Meluzín, Michał Pietrzak, Adam P. Balcerzak
Subject(s): National Economy, Financial Markets
Published by: Masarykova univerzita nakladatelství
Keywords: capital markets interdependence; DCC-GARCH model; conditional variance; conditional correlation; confirmatory factor analysis;
Summary/Abstract: The subject of the article concerns the identification of a common factor (latent variable) describing the interdependence system for selected capital markets. Within the study we conducted an analysis of the correlation between the capital market of Germany and the markets of Poland, the Czech Republic and Hungary. The values of conditional correlations derived from the DCC-GARCH model were used to evaluate the interdependence between the capital markets. Then, based on the established interdependencies between the markets, a cointegration analysis was carried out. The degree of integration of conditional correlation series using the Phillips-Perron test was tested. Based on the Johansen procedure, a long-term system of linkages between the capital markets was determined. The identification of the cointegration process for the interdependence system was an argument for identifying a common factor on the basis of the affirmative factor analysis. The common factor reflects the leading direction of changes in the interdependence system between the German capital market and the markets of Poland, the Czech Republic and Hungary. The estimation of the square trend parameters for the identified common factor allowed us to determine the direction of change in the interdependence system between the examined capital markets. The results obtained confirmed that the increase in the level of interdependence was due to the global financial crisis and the slow stabilization of the analyzed markets.

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