INTEGRATION OF CROATIAN, CEE AND EU EQUITY MARKETS: COINTEGRATION APPROACH

This paper examines bilateral and multilateral integration of equi-ty markets of selected Central and Eastern European countries including Croatia, and German equity market for the period of January 2nd, 1997 to June 10th, 2005.Application of the Johansen cointegration procedure indicates exist-ence of multilateral integration between equity markets of analyzed CEE economies, as well as between the group of CEE equity markets and German equity market. This study offers compelling evidence that the forces driving fi nancial integration are quite powerful, and that we are likely to see more substantial movement in the same direction with time and once these coun-tries join EMU, since evidence from this study suggests that bilateral inte-gration between particular CEE equity markets and German equity market is still absent.