Do European capital flows comove?

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Do European capital flows comove?

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Silvio Contessi
Pierangelo DePace

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Silvio Contessi

Abstract

We study the cross-sectional correlations of net, total, and disaggregated capital flows for the major source and recipient European Union countries. We seek evidence of changes in these correlations since the introduction of the euro to understand whether the European Union can be considered a unique entity with regard to its international capital flows. We first use Ng's (2006) "uniform spacing" methodology to rank cross-sectional correlations (i.e., which flows comove more) and to shed light on potential common factors driving international equity flows. We find that a common factor structure is suitable for equity flows disaggregated by sign but not for net and total flows. We only find mixed evidence that correlations between types of flows have changed since the introduction of the euro.

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2008-042.

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Date of creation: 2008
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Handle: RePEc:fip:fedlwp:2008-042

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This paper has been announced in the following NEP Reports:

NEP-ALL-2008-11-11 (All new papers)
NEP-EEC-2008-11-11 (European Economics)

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Other versions:
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