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Did markets expect Italy to join EMU? Evidence from options markets

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  • Jan Marc Berk

Abstract

This note quantifies the movements in the distribution of future short-term market interest rates in reaction to the selection of countries that were to participate in stage three of Economic and Monetary Union as of 1 January 1999. We conclude that, before the various national central banks and the European Monetary Institute published their convergence reports, financial markets were already convinced that Italy would participate. They furthermore interpreted these reports, when published, as an indication that Italy would indeed participate. The official decision in May 1998 therefore came as no surprise.

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  • Jan Marc Berk, 1999. "Did markets expect Italy to join EMU? Evidence from options markets," Applied Economics Letters, Taylor & Francis Journals, vol. 6(8), pages 481-484.
    • Handle: RePEc:taf:apeclt:v:6:y:1999:i:8:p:481-484
    DOI: 10.1080/135048599352772
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    References listed on IDEAS

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    1. Cox, John C. & Ross, Stephen A., 1976. "The valuation of options for alternative stochastic processes," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 145-166.
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    3. Yacine Aït-Sahalia & Andrew W. Lo, 1998. "Nonparametric Estimation of State-Price Densities Implicit in Financial Asset Prices," Journal of Finance, American Finance Association, vol. 53(2), pages 499-547, April.
    4. Alan S. Blinder, 1997. "Distinguished Lecture on Economics in Government: What Central Bankers Could Learn from Academics--And Vice Versa," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 3-19, Spring.
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