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This paper investigates the nature of volatility spillovers between stock returns and exchange rates changes for the Czech Republic, Hungary, Poland and Slovakia for the 1999-2006 period. We divide our sample in two sub period, prior to the introduction of the Euro as since the single currency has been introduced. We use an EGARCH modelling which takes into account whether bad news has the same impact on volatility as good news. Our results show that in terms of volatility spillover effects from stock returns to exchange rates returns, there is non-existence of significant spillovers in these countries, what suggest the no existence of integration between these two financial markets. If we analyse the spillover effects from exchange rates to stock markets we found that the overall results is the lack of significant spillovers from exchange rate to stock returns. We also found that volatility in stock returns and exchange rates tends to decrease after the countries joined the European Union.
Morales, L.: Volatility spillovers between stock returns and foreign exchange rates: evidence from four eastern European countries. Paper presented to the Financial Management Association (FMA) European Conference, 4-6 June 2008, Prague, Czech Republic. Conference Proceedings.