Article ID Journal Published Year Pages File Type
5056571 Economic Systems 2011 12 Pages PDF
Abstract

We analyse the determinants of stock market integration among EU member states for the period 1999-2007. First, we apply bivariate DCC-MGARCH models to extract dynamic conditional correlations between European stock markets, which are then explained by interest rate spreads, exchange rate risk, market capitalisation, and business cycle synchronisation in a pooled OLS model. By grouping the countries into euro area countries, “old” EU member states outside the euro area, and new EU member states, we also evaluate the impact of euro introduction and the European unification process on stock market integration. We find a significant trend toward more stock market integration, which is enhanced by the size of relative and absolute market capitalisation and hindered by foreign exchange risk between old member states and the euro area. Interest rate spreads and business cycle synchronisation are also significant factors in explaining equity market integration.

► We analyse the determinants of stock market integration among EU member states for the period 1999-2007. ► We find a significant trend toward more stock market integration. ► This trend is enhanced by the size of relative and absolute market capitalisation. ► Foreign exchange risk and interest rate spreads depress integration. ► Business cycle synchronisation increases stock market integration.

Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
Authors
, ,