European Union Enlargement and Equity Markets in Accession Countries

September 1, 2005

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Richard Podpiera, and Tomás Dvorák. European Union Enlargement and Equity Markets in Accession Countries, (USA: International Monetary Fund, 2005) accessed September 18, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Asset prices, Financial institutions, Financial markets, Inflation, Market capitalization, Prices, Stock markets, Stocks

Keywords: Asset prices, Asset pricing, Eastern Europe, EU accession countries firm, EU enlargement, Global, Inflation, International financial integration, Market beta, Market capitalization, Market integration, Market premium, Price increase, Stock markets, Stocks, Systematic risk, World market, WP

Publication Details

Pages:

28
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2005/182
Stock No:

WPIEA2005182
ISBN:

9781451862010
ISSN:

1018-5941

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