IDEAS home Printed from https://ideas.repec.org/a/cvv/journ1/v8y2021i1p1-42.html

Towards an explanation of the Euro FX market reaction in the EU: A review of European integration during the EU crises

Author

Listed:
  • Bachar FAKHRY

    (University of Lahore, School of Accountancy & Finance, Lahore, Pakistan)

Abstract

We review market participants' actions and the EU afterthe introduction of the euro and during the crises period and Brexit process. The crucial factor is the feedback effect in the reactions of the market participants and the EU. The euro was introduced in a compromised monetary union agreement, essentially underlining the European integrative process issues that were highlighted by the euro crises. Hence, for this reason, it is hard to explain the euro crises without referencing the European integration theories. On the other hand, it is difficult to understate the behavioural factors, including greed and fear, in the full explanation of thecrises. At the heart of this research is the introduction of a new model of testing the stability of the market extending the variance bound test of(Fakhry & Richter, 2015) underpinned by a Markov Switching GARCH model. We analyse the stability of the Euro FX Market from 1st January 1999 to 31st December 2019. We found a mixture of over and under reactions defining the three sub-periods which given the Euro heuristic influencing both the market participants’ and EU’s views seem to be an acceptable result

Suggested Citation

  • Bachar FAKHRY, 2021. "Towards an explanation of the Euro FX market reaction in the EU: A review of European integration during the EU crises," Journal of Economics and Political Economy, EconSciences Journals, vol. 8(1), pages 1-42, March.
    • Handle: RePEc:cvv:journ1:v:8:y:2021:i:1:p:1-42
    as

    Download full text from publisher

    File URL: https://journals.econsciences.com/index.php/JEPE/article/view/2170/2194
    Download Restriction: no
    File URL: https://journals.econsciences.com/index.php/JEPE/article/view/2170
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Omar Masood & Bora Aktan & Beata Gavurová & Bachar Fakhry & Manuela Tvaronavičienė & Raimonda Martinkutė-Kaulienė, 2017. "The impact of regime-switching behaviour of price volatility on efficiency of the US sovereign debt market," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 30(1), pages 1865-1881, January.
    2. Wilfling, Bernd, 2001. "Since when have FOREX markets incorporated EMU into currency pricing? Evidence from four exchange rate series," HWWA Discussion Papers 118, Hamburg Institute of International Economics (HWWA).
    3. Bachar FAKHRY, 2019. "Happy 20th birthday Euro: An integrated analysis of the stability status in the Eurozone’s equity markets," Journal of Economics and Political Economy, EconSciences Journals, vol. 6(3), pages 227-256, September.
    4. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    5. Wilfling, Bernd, 2009. "Volatility regime-switching in European exchange rates prior to monetary unification," Journal of International Money and Finance, Elsevier, vol. 28(2), pages 240-270, March.
    6. 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.
    7. Bachar Fakhry & Christian Richter, 2015. "Is the sovereign debt market efficient? Evidence from the US and German sovereign debt markets," International Economics and Economic Policy, Springer, vol. 12(3), pages 339-357, September.
    8. Gabriele Galati & Kostas Tsatsaronis, 2003. "The impact of the euro on Europe's financial markets," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 12(3), pages 165-222, August.
    9. Hooghe, Liesbet & Marks, Gary, 2009. "A Postfunctionalist Theory of European Integration: From Permissive Consensus to Constraining Dissensus," British Journal of Political Science, Cambridge University Press, vol. 39(1), pages 1-23, January.
    10. Frank Schimmelfennig, 2018. "Liberal Intergovernmentalism and the Crises of the European Union," Journal of Common Market Studies, Wiley Blackwell, vol. 56(7), pages 1578-1594, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. John-Paul MARNEY & Bachar FAKHRY, 2024. "A review of the behavioural factors influencing the housing market," Journal of Economic and Social Thought, EconSciences Journals, vol. 11(1-2), pages 1-34, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bachar FAKHRY, 2020. "From optimism to pessimism: The stability of the Euro FX market in the short and long run," Journal of Economics and Political Economy, EconSciences Journals, vol. 7(4), pages 261-283, December.
    2. Catherine E. De Vries, 2017. "Benchmarking Brexit: How the British Decision to Leave Shapes EU Public Opinion," Journal of Common Market Studies, Wiley Blackwell, vol. 55, pages 38-53, September.
    3. Richard Rose & Gabriela Borz, 2016. "Static and Dynamic Views of European Integration," Journal of Common Market Studies, Wiley Blackwell, vol. 54(2), pages 370-387, March.
    4. Trauten, Andreas, 2004. "Zur Effizienz von Wertpapieremissionen über Internetplattformen," Working Papers 8, University of Münster, Competence Center Internet Economy and Hybrid Systems, European Research Center for Information Systems (ERCIS).
    5. Francesco Paolo Mongelli, 2005. "What is European Economic and Monetary Union Telling us About the Properties of Optimum Currency Areas?," Journal of Common Market Studies, Wiley Blackwell, vol. 43(3), pages 607-635, September.
    6. repec:kap:iaecre:v:17:y:2011:i:2:p:119-133 is not listed on IDEAS
    7. Paul Evans & Iftekhar Hasan & Ana Lozano-Vivas, 2008. "Deregulation and Convergence of Banking: The EU Experience," Finnish Economic Papers, Finnish Economic Association, vol. 21(2), pages 104-117, Autumn.
    8. Federico M Ferrara & Waltraud Schelkle & Zbigniew Truchlewski, 2023. "What difference does the framing of a crisis make to European Union solidarity?," European Union Politics, , vol. 24(4), pages 666-683, December.
    9. Patrick McGuire & Nikola Tarashev, 2007. "International banking with the euro," BIS Quarterly Review, Bank for International Settlements, December.
    10. Kok, Christoffer & Puigvert Gutiérrez, Josep Maria, 2006. "Euro area banking sector integration: using hierarchical cluster analysis techniques," Working Paper Series 627, European Central Bank.
    11. Pieterse-Bloem, Mary & Mahieu, Ronald J., 2013. "Factor decomposition and diversification in European corporate bond markets," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 194-213.
    12. Stefano Schiavo, 2008. "Financial Integration, GDP Correlation and the Endogeneity of Optimum Currency Areas," Economica, London School of Economics and Political Science, vol. 75(297), pages 168-189, February.
    13. Jonas Tallberg & Michael Zürn, 2019. "The legitimacy and legitimation of international organizations: introduction and framework," The Review of International Organizations, Springer, vol. 14(4), pages 581-606, December.
    14. Nicola Pensiero, 2020. "To leave or not to leave? Understanding the support for the United Kingdom membership in the European Union: Identity, attitudes towards the political system and socio-economic status," Rationality and Society, , vol. 32(3), pages 255-277, August.
    15. Sergio Mayordomo & Juan Ignacio Peña & Eduardo S. Schwartz, 2009. "Towards a Common European Monetary Union Risk Free Rate," NBER Working Papers 15353, National Bureau of Economic Research, Inc.
    16. Giofré, Maela/M., 2008. "EMU Effects on Stock Markets: From Home Bias to Euro Bias," MPRA Paper 13926, University Library of Munich, Germany.
    17. Gajewski, Krzysztof & Olszewski, Krzysztof & Pawłowska, Małgorzata & Rogowski, Wojciech & Tchorek, Grzegorz & Zięba, Jolanta, 2012. "Integracja finansowa w Europie po wprowadzeniu euro. Przegląd literatury [Financial integration in Europe after the introduction of the euro. A literature overview]," MPRA Paper 42482, University Library of Munich, Germany.
    18. Seow Eng Ong & Davin Wang & Calvin Chua, 2023. "Disruptive Innovation and Real Estate Agency: The Disruptee Strikes Back," The Journal of Real Estate Finance and Economics, Springer, vol. 67(2), pages 287-317, August.
    19. Bradley, Ian, 2003. "The representative bettor, bet size, and prospect theory," Economics Letters, Elsevier, vol. 78(3), pages 409-413, March.
    20. Herrmann, Tabea & Hübler, Olaf & Menkhoff, Lukas & Schmidt, Ulrich, 2016. "Allais for the poor," Kiel Working Papers 2036, Kiel Institute for the World Economy.
    21. Gric, Zuzana & Ehrenbergerova, Dominika & Hodula, Martin, 2022. "The power of sentiment: Irrational beliefs of households and consumer loan dynamics," Journal of Financial Stability, Elsevier, vol. 59(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G01 - Financial Economics - - General - - - Financial Crises
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cvv:journ1:v:8:y:2021:i:1:p:1-42. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Bilal KARGI (email available below). General contact details of provider: https://journals.econsciences.com/index.php/JEPE .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.