Investigating Long-term Dynamic Causal Linkages between Hungarian and Romanian Stock Markets

This article aims to investigate long-term dynamic causal linkages between Hungarian and Romanian stock markets in order to obtain additional benefits based on international portfolio diversification, especially in terms of globalization. Emerging stock markets are generally considered to be more attractive for both institutional and individual financial investors due to certain stylized facts. The volatility transmission patterns, financial contagion effects, international interdependence and long-run causal linkages between international stock markets highlight the importance of a functional and stable financial environment. Technically, the structure of this research paper includes both theoretical developments and additional empirical results. The empirical analysis is based on daily returns of selected stock markets major indices during the sample period between January 2000 and January 2014. The financial econometrics framework includes descriptive statistics, Unit Root Test, Augmented Dickey-Fuller stationary test, BDS test and Granger causality test. The final results of this empirical study are highly relevant in order to understand investment decision making process and stock market stability.