Abstract The integration of global equity markets has been a well-studied topic in the last few decades, particularly after stock market crashes. Most studies have focused on developed markets such as the US, Western Europe and Japan. The findings were that the degree of international co-movements among stock prices has substantially increased in the post-crash regime. In this paper we research the co-movements of German and Bosnian stock markets during and after the recent economic and financial crisis. International market integration means that assets of equal risk provide the same expected returns across integrated markets. This means fewer opportunities for risk diversification if the markets are integrated. It is also believed that stock market indices of integrated markets move together over the long run with the possibility of short-run divergence. There is considerable academic research on the benefits of international diversification. Investors who buy stocks in domestic as well in foreign markets seek to reduce risk through international diversification. The risk reduction takes place if the various markets are not perfectly correlated. The increasing correlation among markets during and after the crises has restricted the scope for international diversification. International stock market linkages are the subject of extensive research due to rapid capital flows between countries because of financial deregulation, lower transaction and information costs, and the potential benefits from international diversification. Most stock markets in the world tend to move together, in the same direction, implying positive correlation. In and after crises they tend to move together even more strongly. Thus, this paper aims to research if there are any diversification opportunities by spreading out investments across developed and underdeveloped capital markets. This research attempts to examine the scope of international diversification between German and Bosnian equity markets during the 6-year period from 2006 to 2011. We test the hypothesis of whether there are any risk diversification possibilities by spreading out the investments between German and Bosnian equity markets. In order to determine the mean-variance efficiency of portfolios we use the method of convex (quadratic and linear) programming. The hypothesis is tested with the Markowitz portfolio optimization method using our own software. The results of this research might enhance the efficiency of portfolio management for both types of capital market under analysis, and prove especially useful for institutional investors such as investment funds.

Using the Internet as a communication channel between a company and its stakeholders is a norm in today's economy, and the Web- based company reports have long replaced traditional forms of corporate reporting. Most investors base their entire first impression of a company on information available on its Web page, and often, an entire initial performance assessment is based on data available on-line. Internet Financial Reporting (IFR), in its broadest form, has become one of the pivotal factors in effective functioning of capital markets. Building on earlier studies, we analyzed the IFR practices of companies traded on two stock exchanges in Bosnia and Herzegovina by estimating multiple regressions separately for both stock exchanges. Our findings clearly show that voluntary disclosure of reports and other forms of company information for analyzed companies is still simplistic. Furthermore, our estimations revealed that profitability measured by return on equity and market activity represented by share turnover significantly affect the IFR index for companies traded on the Banja Luka Stock Exchange (BLSE); with companies traded on the Sarajevo Stock Exchange (SASE), size measured by total asset, as well as market activity measured by share turnover, have a positive effect on the IFR index. On both stock exchanges, companies from the financial industry have on average higher IFR scores than other companies. With respect to expanding earlier studies, this study used an extended sample for Bosnian and Herzegovinian assessments, and as a result, observed additional factors related to the Internet Financial Reporting practices of companies traded on two stock markets in B&H.

This study investigates the performance of the naive 1/N portfolios relative to the mean-variance efficient portfolios and index replicating portfolios. We use the Sharpe ratio to measure the portfolio efficiency applied on sample and out-of sample portfolios from two capital markets, one developed (German) and one underdeveloped (Bosnian) in the pre- and post-crisis periods. We answer the question whether the active portfolio strategies are also more efficient. Our research heavy rely on the research from DeMiguel, Garlappi and Uppal (2009), who found that naive 1/N diversification outperform other optimizing portfolio models in the US stock market. Methods of determining efficient portfolios are mathematical and statistical problems, solved by applying convex, square or linear programming. According to the chosen methodology we applied our own software to solve optimization problems. We use Monte Carlo simulation to generate returns data in order to examine the persistence of the outperforming strategy in different periods. Keywords: Risk, Naive Diversification, Efficient Diversification. JEL Classification: G11

Abstract The capital markets of neighboring transitional Western Balkan countries have attracted a lot of interest from domestic and international investors in the last decade, who view them as an attractive alternative to investing in more developed markets. These markets are characterized by higher returns, and higher volatility of stock returns as compared to those of developed markets. The recent economic and financial crises devastated capital markets worldwide. The new Bosnian capital market faced its hardest times following the withdrawal of international investors. The aim of this paper is to explore whether there is a standard relation between stock returns and market portfolio returns, as proposed by the Sharpe-Lintner Capital Asset Pricing Model (CAPM), in the stock market of Bosnia and Herzegovina. We tested the model hypotheses with a traditional two-stage regression procedure using the OLS method, using continuously compounded (logarithmic) returns on stocks. Our study indicates that despite the crisis the systematic risk measured by the beta coefficient is priced and that the beta premium is positive. Nevertheless, the Security Market Line (SML) intercepts the ordinate lower than the risk free rate of return. Other factors might also influence stock returns in this market.

The first index funds appeared in capital markets during the 1970s. Their investment strategy was based on replicating the fluctuations of some of the world's well-known stock market indexes. Legislation and regulation in Bosnia and Herzegovina, as in other neighboring countries, provides the possibility of establishing index funds, with no concrete initiatives at the moment. One of the better-known asset valuation models, the capital asset pricing model (CAPM), determines the required rate of return on risky assets if the assets are to be added to an already well-diversified portfolio. Since a market portfolio is a theoretical concept, wide stock market indexes are used as proxies for the market. These stock market indexes have to obtain mean-variance efficiency for the CAPM tests. In this paper, we apply a mean-variance optimization model to a basket of securities from the Bosnia and Herzegovina stock market. We explore the efficiency of these indexes as securities portfolios. The possible efficiency of these indexes would encourage the creation of index funds in Bosnia and Herzegovina. Furthermore, we investigate the possible use of these indexes in CAPM tests. Our research shows that the analyzed indexes are not mean-variance efficient. For the purpose of efficient portfolio determination, we use our own software in the application section of the paper. Using this software, we propose indexes that obtain mean-variance efficiency.

The Sharpe-Lintner Capital Asset Pricing Model (CAPM) implies a simple linear equation for pricing risky financial assets, individually and in portfolios. CAPM finds that the relevant risk measure of individual financial assets held as a portion of a well-diversified portfolio is not a variance (or a standard deviation) of financial assets, as proposed by the Modern Portfolio Theory, but a contribution of financial assets to the portfolio variance, measured by the financial asset beta. Beta coefficient is the measure of the systematic risk of risky assets. This paper explores beta coefficients of stocks of the Bosnia and Herzegovina capital market. This capital market is new and underdeveloped, with a modest supply of securities and with a small number of marketable securities. It is interesting to explore whether the beta coefficients of domestic stocks are efficient and whether they could be used in portfolio management. The paper employs the OLS method to estimate the standard Sharpe-Linter CAPM model. As in most other new markets, this market has a non-synchronous trading problem, which determined the selection of the sample used in the econometric analysis. A representative sample of stocks with satisfactory marketability is analyzed over a five-year period, i.e. 2005- 2009. The basic hypothesis of the research is: beta coefficient as a measure of systematic risk is a relevant risk measure for the capital market of Bosnia and Herzegovina. A special aim of the paper is to explore whether estimated models satisfy the presumptions of the linear regression model, which is being examined using a series of diagnostic tests. The results of this paper can be widely used and have significant implications for business purposes. Special attention is dedicated to estimating efficient beta coefficients that may be considered as reliable in a wide use of the CAPM model in financial practice.

Abstract This research investigates diversification possibilities of the four West Balkan capital markets: Sarajevo, Banja Luka, Zagreb and Belgrade Stock Exchanges. Although these markets are highly segmented with different regulations, the capital flow between them is without constraints. By analyzing six main stock market indices in a 34-month period, from 2006 till 2008, we found low to medium positive statistically significant correlation between indices returns pairs. Even though the analyzed period included the second half of 2008, when the ongoing financial and economic crisis became global, the results are encouraging. By Markowitz portfolio selection process, the diversification effect was proven on the analyzed capital markets.

A patient with uterine tumour morphologically identified as leiomyoma and having relapsed after the operation is reported. In spite of recidivation in the morphological finding, there was no evidence of leiomyosarcoma. The possibilities and reliability of the morphological diagnosis are discussed.