Barry Harrison

Spillover effects from London and Frankfurt to Central and Eastern European stock markets

This article investigates comovement in stock markets between the emerging economies of Central and Eastern Europe (CEE) and the developed markets of Western Europe. Three approaches are employed to examine this issue. The first two approaches, time-varying realized correlation ratios and cointegration statistics, use a two-step technique to derive time-varying estimates of the comovement between returns on CEE and EU stock exchanges. The first step uses common factor analysis to define the factors driving CEE stock exchanges, while the second step evaluates the relationship between the leading principal factor for CEE countries and the Deutsche Aktien Xchange (DAX) and Financial Times Stock Exchange (FTSE) using time-varying realized correlation and rolling cointegration statistics. The third approach employs Multivariate Generalized Autoregressive Conditional Heteroscedasticity (MGARCH) techniques to obtain estimates of mean and variance spillover effects.

Further Evidence on the Real Interest Rate Parity Hypothesis in Central and East European Countries: Unit Roots and Nonlinearities

This paper analyzes the empirical fulfillment of the real interest rate parity (RIRP) theory for a pool of central and east European countries. To do so, we apply the recently developed Ng and Perron (2001) unit root tests, which are corrected versions of existing unit root tests, and the Kapetanios et al. (2003) unit root test, which generalizes the alternative hypothesis to the globally stationary smooth transition autoregression model. We find evidence in favor of the empirical fulfillment of RIRP, particularly when taking into account the possibility of nonlinearities in the real interest rate differential.

The Gibson paradox and the Gold Standard: evidence from the United Kingdom, 1821-1913

The paper uses cointegration techniques and a variety of different price-level and interest-rate proxies to investigate the presence of the Gibson paradox in UK data for the period 1821–1913. Qualified evidence is found in favour of the paradox.

Non-linear stock market co-movement in Central and East European countries

As a result of financial globalisation, interest has grown in the extent of stock market integration between different countries. Stock markets can be considered integrated if their prices have a tendency to move together, or if one market leads another. The results of such investigations have important implications for portfolio diversification along international lines. In particular, significant co-movement of international stock markets increases the exposure of domestic investors to foreign shocks and therefore offers very limited scope for gains from international diversification. Also, an understanding of the determinants of stock market co-movement might aid understanding of the home country bias that investors exhibit (Lewis 1999), that is, the preference of investors for domestic investments over foreign investments.

Currency Substitution in a De-Dollarizing Economy: The Case of Russia

Currency substitution, the use of foreign money to finance transactions between domestic residents, is a common feature of emerging market economies.Currency substitution reduces the stability of money demand functions in ways that can seriously undermine central bank credibility and its efforts to implement monetary policy.Most transition economies, including Russia, experienced widespread currency substitution in the early phase of transition.Following Russias financial meltdown in 1998, its monetary authorities introduced a raft of changes that substantially improved the stability and performance of the macroeconomy and reduced currency substitution.This paper investigates currency substitution in the Russian economy in the post-crisis period of 1999-2005.Several measures of currency substitution and different modelling frameworks consistently suggest an on-going decline in currency substitution, a shift that has important implications for Russian monetary policy. JEL Classification: E58, F31, F41 Key words: currency substitution, transition economies, de-dollarization

Nonlinearities in central and eastern European stock markets

In this article we use nonlinear tests to investigate the mean reverting properties of stock prices in a group of Central and East European (CEE) markets. We also test whether returns in our target group of countries demonstrate characteristics of persistence and cross-sectional dependence. Our results indicate that ignoring the nonlinearity in the stock prices of CEE countries could result in misleading inferences.