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Bond Market and Stock Market Integration in Europe

  • Robert-Paul Berben
  • W. Jos Jansen

This paper investigates whether there has been a structural increase in financial market integration in nine European countries and the US in the period 1980-2003. We employ a GARCH model with a smoothly time-varying correlation to estimate the date of change and the speed of the transition between the low and high correlation regimes. Our test produces strong evidence of greater comovement across the board for both stock markets and government bond markets. Dates of change and speeds of adjustment vary widely across country linkages. Stock market integration is a more gradual process than bond market integration. The impact of European monetary union (EMU) is rather limited, as it has mainly affected the timing of bond market correlation gains (but hardly their size) and has had little discernible effect on stock market integration.

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Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 060.

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Date of creation: Dec 2005
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Handle: RePEc:dnb:dnbwpp:060
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