Estimation of Correlation between Capital Markets. Analysing the case of Central and Eastern European markets in the context of the COVID-19 pandemic

Alina Zaharia

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Abstract:

This paper analyses the behaviour of the existing correlations between Central and Eastern Europe’s markets, namely Romania, Czechia, Hungary, Poland, Slovenia, Slovakia and Bulgaria and the developed ones in Germany, France and United Kingdom. The study brings a new perspective on the subject by capturing two major stress periods – the Global Financial Crisis and the first wave of the COVID-19 pandemic and by discussing the implications of a continuously decreasing interest rates environment. By estimating a BEKK model, as well as Spearman’s rank correlation coefficient, the study finds strong similarities between the analysed markets, with a general decreasing trend of the correlations’ level, indicating increasing benefits of diversification.

 

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