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The Integration of European Stock Markets and Market Timing

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  • José Soares Fonseca

    ()
    (GEMF and Faculdade de Economia, Universidade de Coimbra)

Abstract

In this research, a European index and a world index were used to test the integration of the national stock markets of fourteen EU countries into the world stock market. A market timing procedure was used to detect differences of performance between the national indexes. The main conclusions drawn are that the European factor is important in explaining the returns of all the national indexes, but the world portfolio seems unnecessary in the cases of nine countries whose stock markets are embedded in the global European stock market. Differences of performance were also detected: the market timing effect being particularly evident in relation to the European market portfolio. Non-participation in the single currency does not seem to have a perceptible influence on the results.

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Bibliographic Info

Paper provided by GEMF - Faculdade de Economia, Universidade de Coimbra in its series GEMF Working Papers with number 2006-05.

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Length: 38 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:gmf:wpaper:2006-05

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  1. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, Econometric Society, vol. 48(1), pages 1-48, January.
  2. Kpate ADJAOUTE & Jean-Pierre DANTHINE, 2001. "Portfolio Diversification: Alive and well in Euroland !," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP), Université de Lausanne, Faculté des HEC, DEEP 01.08, Université de Lausanne, Faculté des HEC, DEEP.
  3. Glassman, Debra A. & Riddick, Leigh A., 1996. "Why empirical international portfolio models fail: evidence that model misspecification creates home asset bias," Journal of International Money and Finance, Elsevier, Elsevier, vol. 15(2), pages 275-312, April.
  4. Solnik, Bruno H., 1974. "An equilibrium model of the international capital market," Journal of Economic Theory, Elsevier, Elsevier, vol. 8(4), pages 500-524, August.
  5. Glassman, Debra A. & Riddick, Leigh A., 2001. "What causes home asset bias and how should it be measured?," Journal of Empirical Finance, Elsevier, Elsevier, vol. 8(1), pages 35-54, March.
  6. Jun-Koo Kang & Rene M. Stulz, 1995. "Why Is There a Home Bias? An Analysis of Foreign Portfolio Equity Ownership in Japan," NBER Working Papers 5166, National Bureau of Economic Research, Inc.
  7. Bekaert, Geert & Harvey, Campbell R, 1995. " Time-Varying World Market Integration," Journal of Finance, American Finance Association, American Finance Association, vol. 50(2), pages 403-44, June.
  8. Jorion, Philippe & Schwartz, Eduardo, 1986. " Integration vs. Segmentation in the Canadian Stock Market," Journal of Finance, American Finance Association, American Finance Association, vol. 41(3), pages 603-14, July.
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