Abstract: The interdependences among stock market indices
were studied for a long while by academics in the entire world. The
current financial crisis opened the door to a wide range of opinions
concerning the understanding and measurement of the connections
considered to provide the controversial phenomenon of market
integration. Using data on the log-returns of 17 stock market indices
that include most of the CEE markets, from 2005 until 2009, our
paper studies the problem of these dependences using a new
methodological tool that takes into account both the volatility
clustering effect and the stochastic properties of these linkages
through a Dynamic Conditional System of Simultaneous Equations.
We find that the crisis is well captured by our model as it provides
evidence for the high volatility – high dependence effect.