European Union Enlargement and Equity Markets in Accession Countries

Author/Editor:

Richard Podpiera ; Tomás Dvorák

Publication Date:

September 1, 2005

Electronic Access:

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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.

Series:

Working Paper No. 05/182

Subject:

English

Publication Date:

September 1, 2005

ISBN/ISSN:

9781451862010/1018-5941

Stock No:

WPIEA2005182

Price:

$15.00 (Academic Rate:$15.00)

Format:

Paper

Pages:

28

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