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PANEL GARCH MODEL WITH CROSS-SECTIONAL DEPENDENCE BETWEEN CEE EMERGING MARKETS IN TRADING DAY EFFECTS ANALYSIS

This paper investigates the presence of the cross-sectional dependence between daily returns of 10 national stock indices from CEE emerging markets. The previous empirical studies employ OLS regression with dummy variables or univariate GARCH models for each country individually and their variations. However, these models neglect croos-sectional dependence between stock returns and provide imprecise and unreliable conclusions. Therefore, we specify and estimate a panel GARCH and our empirical findings confirm the existence of the cross-sectional dependence of these markets with time varying conditional variance and covariance between considered markets. Results indicate strong presence of the Monday effect in both mean and variance equations, while the Tuesday effect is present only in the mean equation.

panel GARCH model, cross-sectional dependence, day of the week effect, emerging markets

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