Arjan Kadareja

The Impact of the Euro on Equity Markets

This paper investigates whether comovements between euro area equity returns at national and industry level have changed after the introduction of the euro. By adopting a regression quantile-based methodology, we find that after 1999 the degree of comovements among euro area national equity markets has augmented. By explicitly controlling for the impact of global factors, we show that this result cannot be explained away by recent world-wide trends. A more refined analysis based on an industry breakdown suggests that the increase in national index comovements is mainly driven by financial, industrials and consumer services sectors. JEL Classification: F36, G15, C22

Stale Information, Shocks and Volatility

We propose a new approach to measuring the effect of unobservable private information or beliefs on volatility. Using high-frequency intraday data, we estimate the volatility effect of a well identified shock on the volatility of the stock returns of large European banks as a function of the quality of available public information about the banks. We hypothesise that, as the publicly available information becomes stale, volatility effects and its persistence should increase, as the private information (beliefs) of investors becomes more important. We find strong support for this idea in the data. We argue that the results have implications for debate surrounding the opacity of banks and the transparency requirements that may be imposed on banks under Pillar III of the New Basel Accord. JEL Classification: G21, G14

The Swiss Franc and the Euro

This paper investigates two aspects of the relationship between the Swiss Franc and the Euro: the likely long-term trend in the bilateral exchange rate, on the one hand, and the role of nominal exchange rate smoothing for short-run macroeconomic stability, on the other.

Equity Market Integration of New EU Member States

This study assesses the degree of equity market integration for a selected number of new EU member states among themselves and with the euro zone. Within the framework of a factor model for market returns, we adopt an intuitive measure of integration: the higher the amount of return variance explained by the global factor relative to the local components, the higher the degree of integration. Next we derive a relationship between return correlation and the measure of integration. Equity market integration is measured with a regression quantilebased methodology. Evidence suggests that for Czech Republic, Hungary and Poland the degree of integration has increased significantly over the last few years. This is not the case for Cyprus, Estonia, Latvia and Slovenia.

Albanian Banking System – The Past the Present and the Future…

The Albanian banking system is a relatively new system and has been developing mainly during the last 10-15 years, whereas its significant growth and progress was recorded 10 years ago, via the privatization of Savings Bank. Along with privatization, the development path included, also, greenfield investments form foreign banks and capital pooling by Albanian venture capitalists. This process has undoubtedly been crucial and instrumental, in providing the economy with the so-much-needed finance, as the actual ratio of loans-to-GDP stands at 42%, starting from a negligible basis, during 1990s. The Albanian banking system, as well as the global financial system, felt the pinch of the global financial and economic crises, through two almost simultaneous warning events: the deposit withdrawal from the fourth quarter of 2008 till around mid-2009 and the steep increase in non-performing loans, which almost doubled in 2008. Actual data show a stabilized rate of non-performing loans, which indicate that we are now in the upper frontier of natural adjustment of credit to economy. The now days reality is putting the Albanian banking system in front of serious challenges, like: (1) the “paradox” of ever-growing external financing sources and the (2) “difficulty” to invest disposable funds efficiently, (3) effective management of banking system’s maturity phase, and (4) continuous deepening of the Albanian financial system.Conclusively, the Albanian banking system must be obviously prepared to manage and cope with macroeconomic challenges, in the frame of some-years moderate economic growth, as well as the unavoidable consolidation of banking operators, typically with M&A process, spurred by the need to improve the economic efficiency and eventual increase of competition by non-bank financial institutions.

Albania & Kosovo Financial Cooperation and Integration - A New Approach for Financial Regional Integration

Albania and Kosovo, as two Albanians’ states in the region, are trying to bridge their national economies on a permanent basis. Although in its first steps such common vision, willingness and aspiration by many interest groups in both states need to be materialized by identifying real and practical opportunities and ways for a sustainable and coordinated cooperation between both economies, aiming at their final harmonized integration, within Balkan region.Typically, the financial integration of both countries’ banking systems seems to be one of the most important and probable way to ensure their economic integration. There are several substantial reasons, which could establish the suitable premises and favor such a financial integration, along with some obvious positive effects, the latter could provide to both financial systems and economies, respectively. Our discussion is particularly focused on Albania’s public debt and on possible positive effects, such integration could produce. Such particular cooperation and integration could serve as a hotbed and platform for a possible and practical cooperation & integration among Balkan states, which share similar features, in terms of economic development pattern, its stage of advancement, established goods & services markets and regional positioning.