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Determinants of European stock market integration

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  • Büttner, David
  • Hayo, Bernd

Abstract

We analyse the determinants of stock market integration among EU member states for the period 1999–2007. First, we apply bivariate DCC-MGARCH models to extract dynamic conditional correlations between European stock markets, which are then explained by interest rate spreads, exchange rate risk, market capitalisation, and business cycle synchronisation in a pooled OLS model. By grouping the countries into euro area countries, “old” EU member states outside the euro area, and new EU member states, we also evaluate the impact of euro introduction and the European unification process on stock market integration. We find a significant trend toward more stock market integration, which is enhanced by the size of relative and absolute market capitalisation and hindered by foreign exchange risk between old member states and the euro area. Interest rate spreads and business cycle synchronisation are also significant factors in explaining equity market integration.

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  • Büttner, David & Hayo, Bernd, 2011. "Determinants of European stock market integration," Economic Systems, Elsevier, vol. 35(4), pages 574-585.
    • Handle: RePEc:eee:ecosys:v:35:y:2011:i:4:p:574-585
    DOI: 10.1016/j.ecosys.2010.10.004
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    2. Narayan, S. & Sriananthakumar, S. & Islam, S.Z., 2014. "Stock market integration of emerging Asian economies: Patterns and causes," Economic Modelling, Elsevier, vol. 39(C), pages 19-31.
    3. Thuraisamy, Kannan Sivananthan, 2014. "Intra-market sovereign linkages of key Latin American markets," Economic Systems, Elsevier, vol. 38(2), pages 140-160.
    4. David Büttner & Bernd Hayo & Matthias Neuenkirch, 2012. "The impact of foreign macroeconomic news on financial markets in the Czech Republic, Hungary, and Poland," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 39(1), pages 19-44, February.
    5. Khalfaoui, R & Boutahar, M, 2012. "Portfolio risk evaluation: An approach based on dynamic conditional correlations models and wavelet multiresolution analysis," MPRA Paper 41624, University Library of Munich, Germany.
    6. Baumohl, Eduard & Lyocsa, Stefan, 2013. "Volatility and dynamic conditional correlations of European emerging stock markets," MPRA Paper 49898, University Library of Munich, Germany.
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    11. Vyrost, Tomas & Baumöhl, Eduard & Lyocsa, Stefan, 2013. "What Drives the Stock Market Integration in the CEE-3?," EconStor Open Access Articles, ZBW - Leibniz Information Centre for Economics, pages 67-81.
    12. Samitas, Aristeidis & Tsakalos, Ioannis, 2013. "How can a small country affect the European economy? The Greek contagion phenomenon," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 25(C), pages 18-32.
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    14. Ekaterina Dorodnykh, 2014. "Determinants of stock exchange integration: evidence in worldwide perspective," Journal of Economic Studies, Emerald Group Publishing, vol. 41(2), pages 292 - 316, March.
    15. Gębka, Bartosz & Karoglou, Michail, 2013. "Have the GIPSI settled down? Breaks and multivariate stochastic volatility models for, and not against, the European financial integration," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3639-3653.
    16. Roman Horváth & Štefan Lyócsa & Eduard Baumöhl, 2018. "Stock market contagion in Central and Eastern Europe: unexpected volatility and extreme co-exceedance," The European Journal of Finance, Taylor & Francis Journals, vol. 24(5), pages 391-412, March.
    17. Lyócsa, Štefan & Výrost, Tomáš & Baumöhl, Eduard, 2019. "Return spillovers around the globe: A network approach," Economic Modelling, Elsevier, vol. 77(C), pages 133-146.
    18. Pirovano, Mara, 2012. "Monetary policy and stock prices in small open economies: Empirical evidence for the new EU member states," Economic Systems, Elsevier, vol. 36(3), pages 372-390.
    19. repec:eee:finana:v:58:y:2018:i:c:p:247-259 is not listed on IDEAS
    20. Boamah, Nicholas Addai & Watts, Edward J. & Loudon, Geoffrey, 2016. "Investigating temporal variation in the global and regional integration of African stock markets," Journal of Multinational Financial Management, Elsevier, vol. 36(C), pages 103-118.
    21. Urbański, Stanisław, 2012. "Multifactor explanations of returns on the Warsaw Stock Exchange in light of the ICAPM," Economic Systems, Elsevier, vol. 36(4), pages 552-570.
    22. Ekaterina Dorodnykh, 2013. "What Drives Stock Exchange Integration?," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Eastern Macedonia and Thrace Institute of Technology (EMATTECH), Kavala, Greece, vol. 6(2), pages 47-79, September.
    23. Daniela Castro Camilo & Miguel de Carvalho & Jennifer Wadsworth, 2017. "Time-Varying Extreme Value Dependence with Application to Leading European Stock Markets," Papers 1709.01198, arXiv.org.

    More about this item

    Keywords

    Stock market integration; European unification; DCC-MGARCH model;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F3 - International Economics - - International Finance
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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