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Deep Financial Integration and Volatility

  • Sebnem Kalemli-Ozcan
  • Bent Sørensen
  • Vadym Volosovych

We investigate the relationship between financial integration and output volatility at micro and macro levels. Using a very large firm-level dataset from EU countries over time, we construct a measure of "deep" financial integration at the regional level based on foreign ownership at the firm level. We find a positive effect of foreign ownership on volatility of firms' outcomes. This effect survives aggregation and carries over to regional output. Exploiting variation in the transposition dates of EU-wide legislation, we find that high trust regions in countries who harmonized capital markets sooner have higher levels of financial integration and volatility.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15900.

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Date of creation: Apr 2010
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Publication status: published as Deep Financial Integration and Volatility (with Bent Sørensen and Vadym Volosovych), Journal of European Economic Association, forthcoming.
Handle: RePEc:nbr:nberwo:15900
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