Short-Term Shocks and Long-Term Relationships of Interdependencies among Central European Capital Markets

IntroductionGlobalisation phenomenon and changes in the main development determinants of industrialised countries lead to growing interdependencies among economies (Balcerzak, 2009, 2016a; Janda et al., 2013; Pohulak-Zolcdowska, 2016; Kondratiuk-Nierodzinska, 2016; Pietrzak and Balcerzak, 2016a; Balcerzak and Pietrzak, 2016a, 2017). That factor can be especially significant in the case of capital markets (Meluzin and Zinecker, 2016; Meluzin et al., 2016; Osinska et al., 2016). Last global financial crisis has proved the growing influence of "financisation" of economy on the situation on labour markets (Glazar and Strielkowski, RECENT ISSUES IN ECONOMIC DEVELOPMENT 2010; Muller-Frcczek and Pietrzak, 2011; Pietrzak and Balcerzak, 2016b), macroeconomic fiscal stability (Hadas-Dyduch, 2015; Miklaszewicz, 2016; Majerova, 2016; Lajtkepova, 2016; Balcerzak, 2016b; Balcerzak and Rogalska, 2016; Balcerzak et al., 2016) and sustainability of whole economies (Pietrzak et al., 2014; Pietrzak and Balcerzak, 2016c; Balcerzak and Pietrzak, 2016b). As a result, identification of international linkages among markets and analysis of their variability over time is the condition for effective management of risk associated to potential negative influence of global capital markets (Arshanapalli et al., 1995; Andersen et al., 1999; Baur, 2003; Pericoli and Sbracia, 2003; Engle, 2009; Billio and Caporin, 2010; Syllignakis and Kouretas, 2011; Baek and Jun, 2011; Karanasos et al., 2014; Reboredo et al., 2015; Heryan and Ziegelbauer, 2016; Gawronska-Nowak and Grabowski, 2016). It is of great importance both for policy makers at macroeconomic level and managers operating in international environment from microeconomic perspective. As a result, in spite of relatively big supply of research on this subject, the identification of linkages among markets, analysis of changes in the strength of these dependencies must be considered as an important field of scientific research (Forbes and Rigobon, 2002; Corsetti et al., 2005). The main aim of this article is to analyse interdependences among Austrian, Czech, Hungarian and Polish capital markets and the market of Germany. The analysis is carried out both in terms of the impact of short-term shocks and long-term path of these markets. Two hypotheses are proposed in the article. The first one states that there is a similar formation process of long term interdependencies among German and pointed Central European capital markets. According to the second hypothesis it is assumed that volatility of individual capital markets significantly affects the changes of strength of the interdependencies among analysed markets.The article is a continuation and further development of previous research efforts of the authors (Faldzinski and Pietrzak, 2015; Faldzinski et al., 2016; Zinecker et al., 2016; Balcerzak et al., 2016). In this article in order to measure relationships among markets conditional correlations calculated on the basis of the results of estimation of parameters of ARMA(p, q)-APARCH(1,1)-DCC model were used. To verify the hypotheses of the article cointegration analysis for the conditional correlations among selected markets on the basis of VECM model was performed. In the case of specification of VECM model authors have proposed a novel approach in the form of adding the conditional variances for the capital markets as an additional explanatory variable. The inclusion of the variances in the VECM model allowed to assess the impact of short-term shocks on the change of the strength of interdependencies among the analysed capital markets.1. Literature ReviewAs it has been already stated in the introduction, last global financial crisis with the problem of contagion effect was an important factor that has resulted in growing interests in potential consequences of interdependencies among financial markets. The research in that field usually takes a global perspective, where the econometric models are applied to analysis of wide set of international stock indices, or it has regional character from the perspective of world economy, where the main attention is given to interdependencies among markets from a group of countries with similar fundamental characteristics. …