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European Union Enlargement and Equity Markets in Accession Countries
Author:
Richard Podpieranull

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Tomás Dvoráknull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2005: Issue 182
Language:
English
Publication Date:
01 Sep 2005
DOI:
https://doi.org/10.5089/9781451862010.001
ISBN:
9781451862010
ISSN:
1018-5941
Pages:
28
Keywords:
WP; market premium; market beta; price increase; systematic risk; market integration; asset pricing; international financial integration; EU enlargement; world market; EU accession countries firm; Asset prices; Inflation; Stock markets; Market capitalization; Stocks; Eastern Europe; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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The announcement of the European Union enlargement coincided with a dramatic rise in stock prices in accession countries. This paper investigates the hypothesis that the rise in stock prices was a result of the repricing of systematic risk due to the integration of accession countries into the world market. We found that firm-level stock price changes are positively related to the difference between a firm's local and world market betas. This result is robust to controlling for changes in expected earnings, country effects, and other controls, although the magnitude of the effect is not very large. The differences between local and world betas explain nearly 22 percent of the stock price increase.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2005: Issue 182