European Financial Markets

EU membership involves political and economic reforms

which influence financial markets in the new member states.

This study empirically explores and quantifies the effects of

EU accession on the risk and return of equity markets in eight

Central and Eastern European markets joining the EU in 2004.

The study also incorporates a review of how the influence of

macroeconomic variables and the level of integration with

global and European markets change as a result of

EU membership.

Based on empirical tests using weekly data over ten years,

this study concludes that EU membership results in a

significant decline in equity market volatility and a

significant increase in risk-adjusted, but not absolute,

equity returns. Furthermore, the study suggests that equity

markets in new EU member states become increasingly

influenced by global rather than local macroeconomic

factors after the EU accession and that the level of integration

with global markets increases.