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Volume 64, Issue 5

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Risk-Return Convergence in CEE Stock Markets: Structural Breaks and Market Volatility

Baumöhl, Eduard; Lyócsa , Štefan

Year: 2014   Volume: 64   Issue: 5   Pages: 352-373

Abstract: We analyze the risk-return characteristics of nine European emerging stock market indices over the period from January 2000 to December 2013. We show that (i) the return distances declined and structural breaks in this characteristic are sparse; (ii) distances between standard deviations are more time-varying than return distances and several structural breaks have been identified through this risk metric; (iii) the mixed characteristic, i.e. risk-return distances declined over time and were subject to an occurrence of several breaks. The relationship between risk-return characteristics and market volatility is also examined. While the results clearly showed that this relationship is generally positive, the return, risk and risk-return distances increased during the more volatile periods. At the same time, for several CEE markets, this effect is mitigated during bearish market conditions. Overall, our results suggest that even in times of higher volatility, benefits for investors from international diversification to CEE emerging markets may still exist.

JEL classification: C32, G11, G15

Keywords: risk-return characteristics, convergence, stock market integration, market volatility

RePEc: http://ideas.repec.org/a/fau/fauart/v64y2014i5p352-373.html

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