Nonlinearities and divergences in the process of European financial integration

This paper aims to analyze the process of financial integration in the EU-27 area, from 2000 to 2013, using nonparametric methods. Besides a set of other nonparametric measures (e.g. Hartigen and Hartigen test, Kernel density estimation), the stochastic kernel indicates the presence of two or even more convergence clubs into the bond yield density distribution, in the short term, middle term and long term as well. The financial crisis has intensified the divergences emerging within the EU-27, leading to the multimodality of bond yield density distribution, and also to the decline of the financial integration process in the long term. In comparison with traditional parametric approaches used in the convergence literature, the nonparametric measures are found to provide new and more reliable insights to the literature of financial integration.