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Financial Integration at Times of Financial Instability

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Abstract

This article empirically analyzes the phenomenon of financial integration, focusing primarily on assessing the impacts of the current financial crisis. We start our analysis with an overview of cost-benefit considerations associated with the process of financial integration. We go on to examine the relationship between financial integration and financial instability, emphasizing the priority role of financial innovation. The subsequent empirical section provides an analysis of the speed and level of integration of the Czech financial market and the markets of selected inflation-targeting Central European economies (Hungary and Poland) and advanced Western European economies (Sweden and the UK) with the euro area. The results for the Czech Republic reveal that a process of increasing financial integration has been going on steadily since the end of the 1990s and also that the financial crisis caused only temporary price divergence of the Czech financial market from the euro area market.

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Bibliographic Info

Article provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.

Volume (Year): 63 (2013)
Issue (Month): 1 (March)
Pages: 25-45

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Handle: RePEc:fau:fauart:v:63:y:2013:i:1:p:25-45

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Keywords: beta-convergence; financial crisis; financial integration; gamma-convergence; new EU Member States; propagation of shocks; sigma-convergence;

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References

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  1. Hali J. Edison & Ross Levine & Luca Ricci & Torsten Slok, 2002. "International Financial Integration and Economic Growth," NBER Working Papers 9164, National Bureau of Economic Research, Inc.
  2. Markus K. Brunnermeier & Lasse Heje Pedersen, 2007. "Market Liquidity and Funding Liquidity," NBER Working Papers 12939, National Bureau of Economic Research, Inc.
  3. Ian Babetskii & Lubos Komarek & Zlatuse Komarkova, 2007. "Financial Integration of Stock Markets among New EU Member States and the Euro Area," Working Papers 2007/7, Czech National Bank, Research Department.
  4. Rodrigo Cifuentes & Hyun Song Shin & Gianluigi Ferrucci, 2005. "Liquidity Risk and Contagion," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 556-566, 04/05.
  5. Enrique G. Mendoza & Vincenzo Quadrini & José-Víctor Ríos-Rull, 2009. "Financial Integration, Financial Development, and Global Imbalances," Journal of Political Economy, University of Chicago Press, vol. 117(3), pages 371-416, 06.
  6. Brooks, Robin & Del Negro, Marco, 2004. "The rise in comovement across national stock markets: market integration or IT bubble?," Journal of Empirical Finance, Elsevier, vol. 11(5), pages 659-680, December.
  7. Guillaume Plantin & Haresh Sapra & Hyun Shin, . "Marking to Market: Panacea or Pandora’s Box ?," GSIA Working Papers 2005-E4, Carnegie Mellon University, Tepper School of Business.
  8. Philipp Hartmann & Florian Heider & Elias Papaioannou & Marco Lo Duca, 2007. "The role of financial markets and innovation in productivity and growth in Europe," Occasional Paper Series 72, European Central Bank.
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Citations

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Cited by:
  1. Peter Claeys & Borek Vasicek, 2012. "Measuring Sovereign Bond Spillover in Europe and the Impact of Rating News," Working Papers 2012/07, Czech National Bank, Research Department.
  2. Babeckii, Ian & Komárek, Luboš & Komárková, Zlatuše, 2012. "Integration of Chinese and Russian stock markets with world markets: National and sectoral perspectives," BOFIT Discussion Papers 4/2012, Bank of Finland, Institute for Economies in Transition.
  3. Jan Babecky & Alena Bicakova & Alexis Derviz & Tomas Havranek & Roman Horvath & Lubos Komarek & Zlatuse Komarkova & Jakub Mateju & Ke Pang & Renata Pasalicova & Zuzana Prelcova & Marie Rakova & Pierre, 2011. "Macro-Financial Linkages: Theory and Applications," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 2, volume 9, number rb09/2 edited by Jan Babecky, August.
  4. Robert Ambrisko & Vitezslav Augusta & Jan Babecky & Michal Franta & Dana Hajkova & Petr Kral & Jan Libich & Pavla Netusilova & Milan Rikovsky & Jakub Rysanek & Pavel Soukup & Petr Stehlik & Vilem Vale, 2013. "Macroeconomic Effects of Fiscal Policy," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 2, volume 11, number rb11/2 edited by Jan Babecky & Kamil Galuscak, August.
  5. Radoslaw Kurach, 2011. "Eurozone stock returns co-movement: Some findings for portfolio managers and central bankers," Business and Economic Horizons (BEH), Prague Development Center, vol. 5(2), pages 1-12, April.
  6. Kamil Galuscak & Adam Gersl & Marcela Gronychova & Petr Hlavac & Petr Jakubik & Lubos Komarek & Zlatuse Komarkova & Tomas Konecny & Jakub Seidler, 2014. "Stress-Testing Analyses of the Czech Financial System," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 1, volume 12, number rb12/1 edited by Jan Babecky & Roman Horvath, August.
  7. Baumöhl, Eduard, 2013. "Stock market integration between the CEE-4 and the G7 markets: Asymmetric DCC and smooth transition approach," MPRA Paper 43834, University Library of Munich, Germany.

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