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Measuring Financial Integration: Evidence from Ten Industries in a “US-Emerging World”

In: Risk Management Post Financial Crisis: A Period of Monetary Easing

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  • Michael Donadelli

Abstract

This chapter measures financial integration in 10 industries over 4 different periods. We use two robust measures of integration: (i) the Pukthuanthong and Roll (2009)’s multi-factorR-square and (ii) the Volosovych (2011)’s integration index. Both measures, based on PCA, indicate that the difference between the level of integration over the period 2009–2012 (“Post-Lehman” era) and the level of integration over the period 1994–1998 (“Post-Liberalizations” era) is relatively high. In addition, the level of financial integration across international equity markets decreased during the late 1990s. This suggests that de jure integration does not necessarily improve de facto integration. Overall, our findings give rise to a “diversification benefits-insurance benefits trade-off.”

Suggested Citation

  • Michael Donadelli, 2014. "Measuring Financial Integration: Evidence from Ten Industries in a “US-Emerging World”," Contemporary Studies in Economic and Financial Analysis, in: Risk Management Post Financial Crisis: A Period of Monetary Easing, volume 96, pages 153-178, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:csefzz:s1569-375920140000096005
    DOI: 10.1108/S1569-375920140000096005
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    More about this item

    Keywords

    Financial integration; industries; R-square; integration index; PCA; F3; F4; G1;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • G1 - Financial Economics - - General Financial Markets

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