Revisiting stock market index correlations

Comovement of stock market indices increases during volatile periods, and does not come down when the turmoil settles down. This paper explains formation of persistent comovements during high volatility periods with theories from Bayesian learning. My main conclusion is that the correlation that is formed during the high volatility period is persistent because it is learned during the turmoil. The belief that interdependence between markets are high during the volatile period turns into reality by correlated actions of traders in different markets avoiding correlation to fall to its previous level.     

Speculative attack against the Hungarian forint

In mid-January 2003 a severe speculative attack was launched against the exchange rate of the Hungarian forint. The attack was very unusual in the history of foreign exchange speculations, since it was aimed at enforcing the appreciation — and not the depreciation — of the currency targeted. The specific nature of this kind of speculation is closely related to Hungary’s accession to the European Union in general and to EMU in particular. Since the other Central and Eastern European acceding countries face similar problems and challenges, the Hungarian experience may involve some instructive lessons on monetary and economic policy for them too.     

Costs and benefits of EU enlargement

While the political benefits of the coming EU enlargement are relatively easy to identify, its economic and financial consequences are less unequivocal. The following article examines the likely costs and benefits of enlargement to both existing and future Members, and in particular how it will affect Germany, one of the few present EU Member States which has direct borders with acceding states. The article expresses the personal opinions of the author.