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Does Monetary Policy Impact Market Integration? Evidence from Developed and Emerging Markets

Author

Listed:
  • Massimiliano Caporin

    (University of Padua)

  • Loriana Pelizzon

    (Goethe University Frankfurt, Goethe University Frankfurt, and Ca Foscari University of Venice)

  • Alberto Plazzi

    (USI and Swiss Finance Institute)

Abstract

We investigate the impact of monetary announcements of the ECB and the FED on integration in the equity and sovereign CDS markets for a large cross-section of 18 Developed and 21 Emerging countries over 2006 to 2015. The effect of both announcements is negative or muted in the pre-crisis period, while it turns strongly positive during the financial crisis of 2007-2009. ECB interventions lead to more integration in the equity market during 2010 to 2012, but dis-integration in the CDS market in the ECB Quantitative Easing period (2013 to 2015), especially for emerging countries. In contrast, FED announcements are perceived as global factors in the CDS emerging market and are accompanied with an increase in integration both when the FED implements and unwinds its unconventional measures. The relation between the global factor and the U.S. market increases during FED interventions, the same does hold for the European market during ECB announcements. The exposure of emerging markets to outside monetary policy shocks can be explained in terms of their degree of trade and financial openness.

Suggested Citation

  • Massimiliano Caporin & Loriana Pelizzon & Alberto Plazzi, 2017. "Does Monetary Policy Impact Market Integration? Evidence from Developed and Emerging Markets," Swiss Finance Institute Research Paper Series 17-47, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1747
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    More about this item

    Keywords

    unconventional monetary policy; integration; international equity markets; CDS;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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