Globalization or Regionalization of Stock Markets? the Case of Central and Eastern European Countries

This article investigates the degree of financial integration of the Eastern European countries with global and regional financial markets and compares it with the core of the euro area. A Bayesian dynamic factor model was utilized to uncover global, regional and country factors driving the co-movement of rates of return of stock indexes. In the case of the Eurozone, the role of the country and international factor was extremely stable over the analyzed period. The composition of the international factor changed over time with the share of the global factor increasing during the time of the global financial crisis. The share of the country factor in the EMU was around 10%, while it was around 20% in Visegrad 4, indicating very strong international ties between the capital markets.