Financial contagion on the Romanian stock market

This paper tries to examine the behaviour of the Romanian stock market from the point of view of financial contagion from the global world market. For realizing this study our analysis is based on 3 states MS-VAR model from 1997 to 2012, and our results suggest that no real contagion effect can be identified on the Romanian market during the financial crisis, only comovement due to integrated markets. The linkage between the Romanian and the world market is time-varying, from no dependence in can evolve towards a durable relationship in times of medium and high volatility. Even if the Romanian stock market is only mildly integrated with the world market, this level is enough to erase the benefits of international portfolio diversification.