Volatility in stock returns for new EU member states: Markov regime switching model

In this paper, we investigate the volatility in stock markets for the new European Union (EU) member states of the Czech Republic, Hungary, Poland, Slovenia and Slovakia by utilising the Markov regime switching model. The model detects that there are two or three volatility states for the emerging stock markets. The result reveals that there is a tendency that the emerging stock markets move from the high volatility regime in the earlier period of transition into the low volatility regime as they move into the EU. Entry to the EU appears to be associated with a reduction of volatility in unstable emerging markets.