Abstract. The goal of this paper is to investigate the asymmetric impact of innovations on volatility and the relationship between the stock return and volatility dynamics in the case of Central and Eastern European (CEE) markets using the framework of asymmetric stochastic volatility models. The empirical findings provide weak evidence of asymmetry, a significant and high volatility persistence in the stock markets of the CEE region. The most interesting and different results obtained from the present paper are that there are both of a high variability of volatility and a high volatility persistence in the stock markets of Poland and Lithuania. Additionally, the stock markets of the Czech Republic and Hungary, which have leverage effect, have lower variability of volatility and in these markets the future volatility is relatively certain as compared to the other stock markets from the CEE region.

Keywords: Asymmetric Stochastic Volatility, MCMC, Central and Eastern European Markets.