Equity market integration: the new emerging economy of Montenegro
Purpose – The purpose of this paper is to examine the level of capital market integration between the Montenegrin stock market and a number of European Union (EU) countries and the USA. Design/methodology/approach – The authors use an equity data set at the daily frequency from 12 countries and 4 broad regions, spanning the period from March 2003 to September 2008. They investigate long-run and short-run dynamics using cointegration techniques, Granger causality tests and vector error correction models. Findings – The authors provide evidence for the existence of a long-run equilibrium between Montenegro and the developed countries of Western Europe and the USA. The investigation of short-run dynamics reveals that Montenegro follows an autonomous path, influenced mainly by domestic developments. Originality/value – This is the first study on the Montenegrin stock market which has been neglected by the academic community. Montenegro’s accession in the EU is imminent; thus the study of the level of its integration with the rest of EU countries, before its actual accession, is useful for regulators and policymakers. Various lessons of a more general nature can also be drawn from the analysis of this paper.