Transformations  in
Business & Economics

Risk Factors in Central and Eastern European Stock Market Returns
Alexandra Lavinia Horobet, Sorin Dumitrescu, Iulia Tintea

ABSTRACT. Our paper studies the evolution of the financial integration process in Central and Eastern European (CEE) emerging markets by analyzing the risk factors that influence equity market returns. Our approach was to use a wide range of explanatory factors, divided in four categories, as follows: global factors, emerging market factors, European factors and local factors. Testing the importance of global and regional risk factors against the importance of local risk factors offers insight into the degree of financial integration for the analyzed markets and its expected increase in the past years. We find that regional factors have increased in importance, although local risk factors continue to play an important role in explaining the performance of CEE emerging capital markets. The differences between the six analyzed countries are rather significant, some of the markets showing a high degree of financial integration with the developed market.

KEYWORDS: Central and Eastern Europe, risk factors, stock market, financial integration.

JEL classification: F36, G12, G15.