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European Union enlargement and equity markets in accession countries

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Author Info
Tomas Dvorak () (Union College, Schenectady, NY 12308, USA)
Richard Podpiera () (International Monetary Fund,Washington, D.C. 20431, USA)

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Abstract

The announcement of European Union enlargement coincided with a dramatic rise in stock prices in accession countries. This paper investigates the hypothesis that the rise in stock prices was a result of the repricing of systematic risk due to the integration of accession countries into the world market. We find that firm-level stock price changes are positively related to the difference between a firm’s local and world market betas. This result is robust to controlling for changes in expected earnings, country effects and other controls, although the magnitude of the effect is not very large. The differences between local and world betas explain nearly 22% of the stock price increase.

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Paper provided by European Central Bank in its series Working Paper Series with number 552.

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Length: 35 pages
Date of creation: Nov 2005
Date of revision:
Handle: RePEc:ecb:ecbwps:20050552

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Related research
Keywords: Asset pricing; international financial integration; EU enlargement.;

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Find related papers by JEL classification:
F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Rene M. Stulz, 1999. "Globalization of Equity Markets and the Cost of Capital," NBER Working Papers 7021, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Errunza, Vihang R. & Miller, Darius P., 2000. "Market Segmentation and the Cost of the Capital in International Equity Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(04), pages 577-600, December. [Downloadable!]
  3. Peter Christoffersen & Hyunchul Chung & Vihang Errunza, 2003. "Size Matters: The Impact of Capital Market Liberalization on Individual Firms," CIRANO Working Papers 2003s-13, CIRANO. [Downloadable!]
  4. Bekaert, Geert & Harvey, Campbell R. & Lumsdaine, Robin L., 2002. "Dating the integration of world equity markets," Journal of Financial Economics, Elsevier, vol. 65(2), pages 203-247, August. [Downloadable!] (restricted)
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  5. Bekaert, Geert & Harvey, Campbell R, 1995. " Time-Varying World Market Integration," Journal of Finance, American Finance Association, vol. 50(2), pages 403-44, June. [Downloadable!] (restricted)
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  6. Kim, E Han & Singal, Vijay, 2000. "Stock Market Openings: Experience of Emerging Economies," Journal of Business, University of Chicago Press, vol. 73(1), pages 25-66, January. [Downloadable!] (restricted)
  7. Anusha Chari & Peter Blair Henry, 2004. "Risk Sharing and Asset Prices: Evidence from a Natural Experiment," Journal of Finance, American Finance Association, vol. 59(3), pages 1295-1324, 06. [Downloadable!] (restricted)
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  8. Lieven Baele & Annalisa Ferrando & Peter Hördahl & Elizaveta Krylova & Cyril Monnet, 2004. "Measuring financial integration in the euro area," Occasional Paper Series 14, European Central Bank. [Downloadable!]
  9. Kpate ADJAOUTÉ & Jean-Pierre DANTHINE, 2003. "European Financial Integration and Equity Returns: A Theory-Based Assessment," FAME Research Paper Series rp84, International Center for Financial Asset Management and Engineering. [Downloadable!]
  10. Geert Bekaert & Campbell R. Harvey & Christian T. Lundblad, 2003. "Equity Market Liberalization in Emerging Markets," Journal of Financial Research, Southern Finance Association and Southwestern Finance Association, vol. 26(3), pages 275-299. [Downloadable!] (restricted)
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  11. Enrique Sentana, 2002. "Did the EMS Reduce the Cost of Capital?," Economic Journal, Royal Economic Society, vol. 112(482), pages 786-809, October. [Downloadable!] (restricted)
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  12. Ivo Welch, 2000. "Views of Financial Economists on the Equity Premium and on Professional Controversies," Yale School of Management Working Papers ysm122, Yale School of Management. [Downloadable!]
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  13. Geert Bekaert & Campbell R. Harvey, 2000. "Foreign Speculators and Emerging Equity Markets," Journal of Finance, American Finance Association, vol. 55(2), pages 565-613, 04. [Downloadable!] (restricted)
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  14. Peter Blair Henry, 2000. "Stock Market Liberalization, Economic Reform, and Emerging Market Equity Prices," Journal of Finance, American Finance Association, vol. 55(2), pages 529-564, 04. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Babecký, Jan & Komárek, Luboš & Komárková, Zlatuše, 2008. "Financial Integration of Stock Markets among New EU Member States and the Euro Area," The Warwick Economics Research Paper Series (TWERPS) 849, University of Warwick, Department of Economics. [Downloadable!]
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  2. Charlotte Christiansen & Angelo Ranaldo, 2007. "Extreme Coexceedances in New EU Member States’ Stock Markets," CREATES Research Papers 2007-34, School of Economics and Management, University of Aarhus. [Downloadable!]
    Other versions:
  3. Henry, Peter B., 2006. "Capital Account Liberalization: Theory, Evidence, and Speculation," Research Papers 1951, Stanford University, Graduate School of Business. [Downloadable!]
    Other versions:
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