Equity market integration: the new emerging economy of Montenegro

Abstract

Purpose

The purpose of this paper is to examine the level of capital market integration between the Montenegrin stock market and a number of European Union (EU) countries and the USA.

Design/methodology/approach

The authors use an equity data set at the daily frequency from 12 countries and 4 broad regions, spanning the period from March 2003 to September 2008. They investigate long-run and short-run dynamics using cointegration techniques, Granger causality tests and vector error correction models.

Findings

The authors provide evidence for the existence of a long-run equilibrium between Montenegro and the developed countries of Western Europe and the USA. The investigation of short-run dynamics reveals that Montenegro follows an autonomous path, influenced mainly by domestic developments.

Originality/value

This is the first study on the Montenegrin stock market which has been neglected by the academic community. Montenegro’s accession in the EU is imminent; thus the study of the level of its integration with the rest of EU countries, before its actual accession, is useful for regulators and policymakers. Various lessons of a more general nature can also be drawn from the analysis of this paper.

Citation

G. Papavassiliou, V. (2014), "Equity market integration: the new emerging economy of Montenegro", Review of Accounting and Finance, Vol. 13 No. 3, pp. 291-306. https://doi.org/10.1108/RAF-05-2013-0073