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The relevance of network effects on the Central-Eastern European (CEE) stock market indices, 2008 Q1-2022 Q1

Gábor Dávid Kiss,Sabri Alipanah,Dóra Sallai

Published 2024 in Regional Statistics

ABSTRACT

This study examines the development of stock market indices in the open and small economies of Central-Eastern European (CEE) countries between 2008 Q1 and 2022 Q1. A panel vector autoregression model (PVAR) was estimated on a set of macrodata and time-variant closeness centralities to understand the role of network effects. The time variance of closeness was achieved through quarterly re-estimation of a minimum spanning tree graph, representing the entire set of European stock markets (market-network). The sample covers the major events of the Global Financial Crisis and Eurozone sovereign debt crisis of 2008 and 2012 and the Covid-19 pandemic after 2020. In this study, the authors estimated the development of stock market indices in relation to macro variables related to funding, foreign exchange, and profitability, which can affect the expectations about the discounted cash flows of publicly listed companies. However, stock market indices decrease if the European market network has a higher degree of synchronization, leading to the temporary emergence of financial contagions. The findings indicate that stock market indices primarily react to traditional macro variables in the short and medium term, but changes in the network’s shape can alter this process in the short term. These results underline the occurrence of cheaper-than-fundamental entry points for value-based investors in these markets due to such contagion-driven

PUBLICATION RECORD

  • Publication year

    2024

  • Venue

    Regional Statistics

  • Publication date

    Unknown publication date

  • Fields of study

    Not labeled

  • Identifiers
    DOI 10.15196/rs140206
  • External record

    Open on Semantic Scholar

  • Source metadata

    Semantic Scholar

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