Title: Time-varying betas in Central and Eastern European markets: a bivariate BEKK GARCH approach

Authors: Sorin Gabriel Anton; Marie Ochem

Addresses: Faculty of Economics and Business Administration, 'Al. I. Cuza' University of Ia?i, 11, Boulevard Carol I, Iasi, 700506, Romania ' Aquila Risk Solutions, Luxembourg 12, rue Jean Engling, L-1466 Luxembourg

Abstract: In this paper, we analyse country risk of eight Central and Eastern European (CEE) countries by calculating time-varying betas. We have used daily closing prices of indices from 3 June 2002 through 2 December 2011, resulting in 2021 observations. The time-varying betas where calculated by applying multivariate GARCH BEKK models under multivariate normal distribution of errors. Results indicate that BEKK models are appropriate on estimating time-varying beta for Czech Republic, Hungary, Estonia, Lithuania, Poland, Romania, and Russia, except for Latvia. Moreover, the behaviour of time-varying betas during the crisis differs between CEE markets. Countries with flat exchange rates seem to eliminate some of the country risk. For Romania and Hungary, time-varying beta increase was eliminated due to assistance of the International Monetary Fund during the crisis.

Keywords: time-varying beta; country risk; GARCH BEKK model; Central and Eastern Europe; CEE; financial crisis; stock index; emerging markets; Czech Republic; Estonia; Lithuania; Poland; Romania; Russia; Latvia; Hungary.

DOI: 10.1504/IJEPEE.2013.055792

International Journal of Economic Policy in Emerging Economies, 2013 Vol.6 No.2, pp.107 - 121

Published online: 28 Jun 2014 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article