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The European Union, the Euro, and equity market integration

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  • Bekaert, Geert
  • Harvey, Campbell R.
  • Lundblad, Christian T.
  • Siegel, Stephan

Abstract

We use industry valuation differentials across European countries to study the impact of membership in the European Union as well as the Eurozone on both economic and financial integration. In integrated markets, discount rates and expected growth opportunities should be similar within one industry, irrespective of the country, implying narrowing valuation differentials as countries become more integrated. Our analysis of the 1990–2007 period shows that membership in the EU significantly lowered discount rate and expected earnings growth differentials across countries. In contrast, the adoption of the Euro was not associated with increased integration. Our results do not change when the sample is extended to include the recent crisis period.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 109 (2013)
Issue (Month): 3 ()
Pages: 583-603

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Handle: RePEc:eee:jfinec:v:109:y:2013:i:3:p:583-603

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Web page: http://www.elsevier.com/locate/inca/505576

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Keywords: European Union; Euro; Equity market integration; Valuation differential;

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Cited by:
  1. Andrew Clare & James Seaton & Peter N. Smith & Stephen Thomas, 2014. "European Equity Investing through the Financial Crisis: Can Risk Parity, Momentum or Trend Following Help to Reduce Tail Risk?," CAMA Working Papers 2014-08, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  2. Baltzer, Markus & Stolper, Oscar & Walter, Andreas, 2013. "Is local bias a cross-border phenomenon? Evidence from individual investors’ international asset allocation," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2823-2835.
  3. Stolowy, Hervé & Jeanjean, Thomas & Erkens, Michael, 2011. "The economic consequences of increasing the international visibility of financial reports," Les Cahiers de Recherche 957, HEC Paris.
  4. Thomas Jeanjean & Hervé Stolowy & Michael Erkens, 2012. "Economic consequences of adopting English for annual reports," Post-Print hal-00690931, HAL.
  5. G. Everaert & L. Pozzi, 2014. "The dynamics of European financial market integration," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 14/877, Ghent University, Faculty of Economics and Business Administration.
  6. Christiansen, Charlotte, 2014. "Integration of European bond markets," Journal of Banking & Finance, Elsevier, vol. 42(C), pages 191-198.
  7. Joshua Aizenman & Yothin Jinjarak & Minsoo Lee & Donghyun Park, 2012. "Developing countries’ financial vulnerability to the euro crisis: An event study of equity and bond markets," NBER Working Papers 18028, National Bureau of Economic Research, Inc.
  8. Bris, Arturo & Koskinen, Yrjö & Nilsson, Mattias, 2011. "The Euro and Corporate Financing," CEPR Discussion Papers 8227, C.E.P.R. Discussion Papers.
  9. Nicolas Merener, 2012. "Globally Distributed Production and Asset Pricing:the Rise of Latin America in CME Soybean Futures," Business School Working Papers 2012-01, Universidad Torcuato Di Tella.
  10. Dahlquist, Magnus & Hasseltoft, Henrik, 2013. "International Bond Risk Premia," Journal of International Economics, Elsevier, vol. 90(1), pages 17-32.

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