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EMU-related news and financial markets in the Czech Republic, Hungary and Poland

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Abstract:

We analyse the impact of news on five financial markets in the Czech Republic, Hungary and Poland using a newly constructed data set in a Generalized Autoregressive Conditional Heteroscedastic (GARCH) framework. Macroeconomic shocks (on Gross Domestic Product (GDP), inflation rate, current account and trade balance) are constructed as deviations from expected values. Economic and Monetary Union (EMU)-related political and fiscal news is captured as news dummies. Macroeconomic shocks significantly affect short-term interest rates and, to a lesser extent, other financial variables. Political and fiscal news has an impact on long-term bond yields and exchange rates. News displayed prominently in our media sources has a greater impact on financial markets than other news and, in addition, the sources of news themselves matter. We also discover asymmetric effects of news within markets. Finally, using a pooled GARCH model we find that macroeconomic shocks have the strongest impact on financial markets in Hungary, while political news has the largest influence in both Hungary and Poland.

Keywords: CEEC-3; European Monetary Union; F30; G12; G15; financial markets; macroeconomic shocks; political news

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036846.2011.587775

Affiliations: Faculty of Business Administration and Economics, Philipps-University, D-35032 Marburg, Germany

Publication date: November 1, 2012

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