Uncovered Equity Returns Parity in Non‐Euro Central European EU Member Countries

Document Type

Peer-Reviewed Article

Publication Date



This paper examines a nexus between euro values of local currencies and returns to equities in non‐euro Central European countries (CECs) relative to returns in a global equity market. In essence, it analyses whether the uncovered equity returns parity (UERP) condition holds in these countries. In theory, the UERP condition holds if higher returns in a local equity market relative to the global market returns are offset by the local currency depreciation. The underlying UERP model examines the relationship between local currencies in euro and CEC equity returns relative to a global market index proxied by Wilshire5000 index. We assume that the UERP relationship is country‐sensitive, time‐dependent and state‐dependent, that is, it varies among countries and depends on economic and financial market conditions. The model is tested with the Bai–Perron multiple breakpoint regressions for structural breaks, as well as the two‐state Markov switching test for state dependence, during the January 4, 1999–February 25, 2020 sample period. We find that UERP condition holds in CECs mainly at times of financial distress, including the peak and the aftermath of the 2008–2010 global financial crisis.


First published: 03 January 2021.

The data that support the findings of this study are openly available via Bloomberg Terminals. Retrieved, July 8, 2020.