<p>Contents<br/>Abstract ........................................................................................................... v<br/>About the Author ........................................................................................... vii<br/>List of Figures................................................................................................. xiii<br/>List of Tables .................................................................................................. xv<br/>1 Introduction .............................................................................................. 1<br/>1.1 Context of Study ............................................................................... 1<br/>1.2 Scope of Study .................................................................................. 2<br/>1.3 Contribution of Study ....................................................................... 4<br/>1.4 Definition of Key Terms ................................................................... 6<br/>1.4.1 Definition of European Transition Economies ..................... 6<br/>1.4.2 Definition of European Union Membership ......................... 7<br/>1.4.3 Definition of Effects on Equity Markets .............................. 8<br/>1.5 Structure of Study ............................................................................. 9<br/>2 Literature Review .................................................................................... 11<br/>2.1 Performance Characteristics of Emerging Markets .......................... 11<br/>2.1.1 Return and Volatility Characteristics .................................... 12<br/>2.1.2 Co-movement Between Emerging Markets<br/>and World Markets ................................................................ 13<br/>2.2 Market Integration ............................................................................ 15<br/>2.2.1 Distinguishing Between Market Integration<br/>and Market Liberalisation ..................................................... 16<br/>2.2.2 Theory of Market Integration ............................................... 16<br/>2.2.3 Empirical Market Integration Research ................................ 19<br/>2.3 Regional Market Integration ............................................................. 24<br/>2.3.1 Welfare Effects of Regional Market Integration................... 25<br/>2.3.2 Market Integration Effects of the EU Enlargement .............. 26<br/>2.4 Market Integration and Corporate Governance ................................ 27</p><p>2.4.1 Theoretical Link Between Corporate Governance<br/>and Asset Pricing .................................................................. 27<br/>2.4.2 Empirical Evidence Linking Governance<br/>and Asset Pricing .................................................................. 28<br/>2.5 Concluding Remarks on Literature Review ..................................... 29<br/>3 Definition of Research Questions and Hypotheses ............................... 31<br/>3.1 EU Accession and Equity Market Integration .................................. 32<br/>3.1.1 Impact of EU Accession on Level of Co-movement............ 34<br/>3.1.2 Impact of EU Accession on Influence<br/>by Macroeconomic Factors ................................................... 34<br/>3.2 EU Accession and Equity Market Performance ............................... 36<br/>3.2.1 Impact of EU Accession on Equity Market Volatility .......... 37<br/>3.2.2 Impact of EU Accession on Equity Market Returns ............ 40<br/>3.3 Concluding Remarks on Research Questions and Hypotheses ........ 43<br/>4 Methodology ............................................................................................. 45<br/>4.1 Impact of EU Accession on Level of Integration ............................. 45<br/>4.1.1 Co-movement of Equity Market Returns ............................. 46<br/>4.1.2 Influence of Global and Local Macroeconomic<br/>Factors ................................................................................... 49<br/>4.2 Impact of EU Accession on Performance ........................................ 55<br/>4.2.1 Impact of EU Accession on Equity Market Volatility .......... 55<br/>4.2.2 Impact of EU Accession on Equity Market Return.............. 57<br/>4.3 Concluding Remarks on Methodology ............................................. 60<br/>5 Review of Empirical Data ....................................................................... 61<br/>5.1 Review of Qualitative Information and Data .................................... 61<br/>5.1.1 Liberalisation of Eastern European Financial<br/>Markets ................................................................................. 62<br/>5.1.2 Initiation of Equity Trading in European<br/>Transition Economies ........................................................... 63<br/>5.1.3 EU Accession Process of Eastern<br/>European Economies ............................................................ 64<br/>5.2 Review of Quantitative Data Samples .............................................. 68<br/>5.2.1 Market Return Data for European<br/>Transition Economies ........................................................... 68<br/>5.2.2 Return Data on Global and European Indices ...................... 85<br/>5.2.3 Data on Global and Local Macroeconomic Factors ............. 86<br/>5.2.4 Deposit Rates for Calculation<br/>of Risk-Adjusted Return Measure ........................................ 92<br/>5.3 Concluding Remarks on Empirical Data Review ............................. 93</p><p>6 Findings and Discussion .......................................................................... 95<br/>6.1 Findings on Impact of EU Accession on Equity<br/>Market Integration ............................................................................ 95<br/>6.1.1 Findings on Change in Co-movement Between<br/>Local and Global Indices ...................................................... 95<br/>6.1.2 Findings on Change in Level of Influence<br/>of Macroeconomic Factors ................................................... 106<br/>6.2 Findings on Impact of EU Accession on Equity<br/>Market Performance ......................................................................... 128<br/>6.2.1 Findings on Impact of EU Accession<br/>on Equity Market Volatility .................................................. 128<br/>6.2.2 Findings on Impact of EU Accession<br/>on Return Levels ................................................................... 135<br/>6.3 Concluding Remarks on Findings and Discussion ........................... 143<br/>7 Conclusions ............................................................................................... 145<br/>7.1 Interpretation of Results ................................................................... 146<br/>7.1.1 EU Accession and Level of Co-movement<br/>of Equity Returns .................................................................. 146<br/>7.1.2 EU Accession and Influence<br/>of Macroeconomic Factors on Equity Returns ..................... 148<br/>7.1.3 EU Accession and Equity Market<br/>Volatility and Return ............................................................. 152<br/>7.2 Limitations of Study ......................................................................... 153<br/>7.2.1 Limitations Related to Data Samples ................................... 153<br/>7.2.2 Limitations Related to Research Methodology .................... 154<br/>7.3 Contributions and Implications of Research .................................... 155<br/>7.3.1 Contribution to Academia ..................................................... 155<br/>7.3.2 Contribution to Practice ........................................................ 156<br/>7.4 Further Research ............................................................................... 157<br/>7.5 Concluding Remarks......................................................................... 158<br/>References ....................................................................................................... 159<br/>Appendix ......................................................................................................... 165<br/>Appendix 1 Index Constituents by Market as of End of Year 2005 ...... 165<br/>Appendix 2 Detailed Sovereign Credit Rating Data .............................. 171<br/>Appendix 3 Exchange Rates Applied in the Analysis ............................ 173<br/>Appendix 4 Rolling 26-Week Correlation Coefficients of Global<br/>and Local Equity Market Indices ........................................ 176<br/>Appendix 5 List of Abbreviations Applied in Text ................................ 184<br/>Appendix 6 List of Variable Acronyms .................................................. 185</p><p>List of Figures<br/>Figure 1.1 Delimitations of study ............................................................... 3<br/>Figure 1.2 Recent and potential EU candidates.......................................... 5<br/>Figure 3.1 Average long-term sovereign credit ratings<br/>for the eight European transition economies,<br/>January 1996–July 2006 ............................................................ 39<br/>Figure 3.2 Overview of research area ......................................................... 43<br/>Figure 5.1 Histogram of Slovenian weekly market returns prior<br/>to accession announcement based on local currencies ............. 82<br/>Figure 5.2 Closing values of MSCI World and selected FTSE indices ..... 85<br/>Figure 5.3 Average deposit rates for Hungary, Poland<br/>and the Czech Republic ............................................................. 92<br/>Figure 5.4 Average deposit rates for Lithuania, Latvia and Estonia .......... 92<br/>Figure 5.5 Average deposit rates for Slovenia and the Slovak<br/>Republic ..................................................................................... 92<br/>Figure 6.1 Mean correlation coefficient between the MSCI World<br/>and the local equity market indices ........................................... 102<br/>Figure 6.2 Mean correlation coefficient between the FTSEurofirst<br/>300 Eurozone and the local equity market indices ................... 102<br/>Figure 6.3 Mean correlation coefficient between the FTSE<br/>EuroMid Eurozone and the local equity market indices ........... 102<br/>Figure 6.4 Rolling 26-week standard deviation of equity market<br/>returns in Poland, Hungary and the Czech Republic ................ 129<br/>Figure 6.5 Rolling 26-week standard deviation of equity<br/>index returns in Lithuania, Latvia and Estonia ......................... 130<br/>Figure 6.6 Rolling 26-week standard deviation of equity<br/>index returns in Slovenia and the Slovak Republic .................. 130<br/>Figure 6.7 Polish equity index – weekly closing values indexed<br/>to 100 as of January 1996 ......................................................... 135<br/>Figure 6.8 Hungarian equity index – weekly closing values<br/>indexed to 100 as of January 1996 ............................................ 135</p><p>Figure 6.9 Czech equity index – weekly closing values<br/>indexed to 100 as of January 1996 ............................................ 136<br/>Figure 6.10 Lithuanian equity index – weekly closing values<br/>indexed to 100 as of January 2000 ............................................ 136<br/>Figure 6.11 Latvian equity index – weekly closing values<br/>indexed to 100 as of January 2000 ............................................ 136<br/>Figure 6.12 Estonian equity index – weekly closing values<br/>indexed to 100 as of June 1996 ................................................. 136<br/>Figure 6.13 Slovenian equity index – weekly closing values<br/>indexed to 100 as of January 1996 ............................................ 137<br/>Figure 6.14 Slovak equity index – weekly closing values<br/>indexed to 100 as of January 1996 ............................................ 137</p><p>[Power=50]<br/>[/Power]</p>