Transformations  in
Business & Economics

Changes in Investors’ Reactions to Uncertainty after the 2008 Global Financial Crisis: The Case of Central and Eastern European Countries
Ovidiu Stoica, Seyed Mehdian, Delia Elena Diaconasu

ABSTRACTThis paper examines changes in the pattern of investor reactions to the arrival of unexpected information in five Central and Eastern European countries (i.e. Bulgaria, Czech Republic, Hungary, Poland, and Romania) during two periods: pre- and post-2008 financial crisis. Our analysis investigates the shift in investor behaviour in the framework of three opposing hypotheses: 1) the Overreaction Hypothesis (OH), 2) the Uncertain Information Hypothesis (UIH), and 3) the Efficient Market Hypothesis (EMH). We find statistically significant support for the OH prediction all CEE countries except the Czech Republic during the pre-2008 global financial crisis, as well as support for the hypothesis in all CEE countries during the post-crisis. These findings show that corrective price patterns are downward reactions to the arrival of unexpected favourable news, while subsequent upward and corrective price patterns follow the arrival of unexpected unfavourable information.

KEYWORDS: emerging stock markets, Central and Eastern Europe, financial crisis, behaviour of investors.

JEL classification: G1, G14.