An Empirical Examination of the Dissemination of Equity Price Innovations Between the Emerging Markets of Nordic-Baltic States and Major Advanced Markets

: We employ three econometric models to examine the relative influence of the stock markets of the United States, the United Kingdom, France, and Germany on the stock markets of the Nordic-Baltic states. The results show that the Nordic-Baltic markets respond to price innovations from the United States, the United Kingdom, France, and Germany in diverse ways in the period 2001–2013. Response patterns for Finland, Norway, Sweden, Iceland, and Denmark are more significant to market innovations from the United States, the United Kingdom, and France, and less significant to those from Germany. German influence is more significant over Latvia, Lithuania, and Estonia than the rest of the advanced markets. While the dynamics of the Nordic-Baltic markets exhibit a dominance of own price innovation, the influence of the United States is stronger than that of France, the United Kingdom, and Germany. These results imply that investors from the Nordic States may derive greater benefits by diversifying into Germany and vice versa, rather than diversifying into the United States, the United Kingdom, or France. Investors from the Baltic States may obtain greater advantages by adopting portfolio strategies that take advantage of potentially better diversification benefits obtainable from the United States, the United Kingdom, and France rather than from Germany, and the reverse will also be in order.