Croatian Equity Market in Perspective of European Integration

Croatia is on its path to the EU. Developments on this path have influence on many aspects in the economy. In this paper we analyse integration of Croatian equity market with European and world equity markets and measure integration with the VAR impulse responses and variance decomposition. The premise is that well integrated markets should respond to shocks similarly. According to this test, major world markets (measured by DJIA, FTSE and DAX) indeed display certain degree of shock transmission. Opposite, Croatian and other less important markets in CEE economies that were tested do not show the same degree of integration. It seems that in terms of transfer of short term shocks between markets, Croatia and other CEE economies are still pretty much isolated from the world.