Template-Type: ReDIF-Article 1.0 Author-Name: Máté Csiki Author-Workplace-Name: University of Szeged Author-Email: csiki.mate@eco.u-szeged.hu Author-Name: Gábor Dávid Kiss Author-Workplace-Name: University of Szeged Author-Email: kiss.gabor.david@eco.u-szeged.hu Author-Person: pki355 Title: Capital Market Contagion in the Stock Markets of Visegrád Countries Based on the Heckman Selection Model Abstract: In our study, we examine contagions materialising between the stock market indices of three countries in the Visegrád region – Poland, Czech Republic, Hungary – and selected developed countries – USA and Germany. The sample covers the period between 1997 and 2017, which includes a number of events that caused major financial and capital market turbulences in past decades, the effects of which are still significant on the capital markets of the Visegrád region today. We simulated the comovement of Visegrád and developed markets with a DCC procedure, and applied the Heckman selection model – a novel technique in relevant studies – to explain the volatility of the correlation and to capture collective behaviours between the markets. Our analysis of the extreme returns of regional indices reveals increasing global integration across the regional equity markets and their exposure to the oil market. The relevance of our work is confirmed by the presence of contagions – as presented within the framework of the model – between the regional indices and the S&P500 as well as the DAX index which are caused by financial and capital market shocks, while there is also evidence of a significant impact exerted by the German stock market index on the Visegrád stock indices. Periodically and as a function of market shifts, some variance can be observed in the contagion channels, and the unique properties specific to the region can be recognised. Classification-JEL: G15, C33, F65 Keywords: contagion, Heckit, equity market Pages: 23-52 Volume: 17 Issue: 4 Year: 2018 File-URL: http://english.hitelintezetiszemle.hu/letoltes/fer-17-4-st2-csiki-kiss.pdf File-Format: Application/pdf Handle: RePEc:mnb:finrev:v:17:y:2018:i:4:p:23-52