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Are the new and old EU countries financially integrated?

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    Abstract

    During the last four years, the eight Eastern European countries that joined the EU in 2004 have made significant strides toward financial integration with the EU. Several pieces of evidence support this finding. First, yields on long-term sovereign bonds in accession countries have converged towards EU levels. This is true for both bonds denominated in local currency and bonds denominated in euro. Second, while the issuance of euro-denominated corporate bonds from accession countries is limited, yields on existing corporate bonds are in line with those in the old EU countries. Third, margins in the banking sector have narrowed, which is consistent with the integration of banking markets. Finally, we note that the current stock market rally is consistent with equity market integration.

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    File URL: http://web.williams.edu/Economics/wp/geiregatdvorak2004.pdf
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    Bibliographic Info

    Paper provided by Department of Economics, Williams College in its series Department of Economics Working Papers with number 2004-09.

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    Date of creation: May 2004
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    Handle: RePEc:wil:wileco:2004-09

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    Keywords: financial integration; Eastern Europe; EU enlargement;

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    1. Ravi Jagannathan & Zhenyu Wang, 1996. "The conditional CAPM and the cross-section of expected returns," Staff Report 208, Federal Reserve Bank of Minneapolis.
    2. Steven Fries & Anita Taci, 2004. "Cost efficiency of banks in transition: Evidence from 289 banks in 15 post-communist countries," Working Papers 86, European Bank for Reconstruction and Development, Office of the Chief Economist.
    3. Fratzscher, Marcel, 2001. "Financial market integration in Europe: on the effects of EMU on stock markets," Working Paper Series 0048, European Central Bank.
    4. 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.
    5. 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.
    6. Sentana, Enrique, 2000. "Did the EMS Reduce the Cost of Capital?," CEPR Discussion Papers 2640, C.E.P.R. Discussion Papers.
    7. Fama, Eugene F & French, Kenneth R, 1992. " The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-65, June.
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    Cited by:
    1. Cappiello, Lorenzo & Gérard, Bruno & Kadareja, Arjan & Manganelli, Simone, 2006. "Financial integration of new EU Member States," Working Paper Series 0683, European Central Bank.

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