The stock markets in Eastern Europe went through a period of rapid growth. Those which joined the EU had to integrate with Western Europe on various levels, which had important implications for their equity price development during the subprime mortgage crisis. The aim of the paper is to analyze the developments in the stock markets of Eastern European countries before and during the subprime crisis and to evaluate the hypothesis of disappearing portfolio diversification opportunities in the region. Through the application of correlation analysis, Markowitz mean variance approach and portfolio optimisation strategy based on the Sharpe ratio, it is shown that diversification opportunities for a US investor in the Eastern European region have largely disappeared.
Financed by the National Centre for Research and Development under grant No. SP/I/1/77065/10 by the strategic scientific research and experimental development program:
SYNAT - “Interdisciplinary System for Interactive Scientific and Scientific-Technical Information”.