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Are the new and old EU countries financially integrated?

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    During the last four years, the eight Eastern European countries that joined the EU in 2004 have made significant strides toward financial integration with the EU. Several pieces of evidence support this finding. First, yields on long-term sovereign bonds in accession countries have converged towards EU levels. This is true for both bonds denominated in local currency and bonds denominated in euro. Second, while the issuance of euro-denominated corporate bonds from accession countries is limited, yields on existing corporate bonds are in line with those in the old EU countries. Third, margins in the banking sector have narrowed, which is consistent with the integration of banking markets. Finally, we note that the current stock market rally is consistent with equity market integration.

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    File URL: http://web.williams.edu/Economics/wp/geiregatdvorak2004.pdf
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    Paper provided by Department of Economics, Williams College in its series Department of Economics Working Papers with number 2004-09.

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    Date of creation: May 2004
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    Handle: RePEc:wil:wileco:2004-09
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    1. Fratzscher, M., 2001. "Financial Market Integration in Europe: On the Effects of EMU on Stock Markets," Papers 48, Quebec a Montreal - Recherche en gestion.
    2. Anusha Chari & Peter Blair Henry, 2002. "Risk Sharing and Asset Prices: Evidence From a Natural Experiment," NBER Working Papers 8988, National Bureau of Economic Research, Inc.
    3. Enrique Sentana, 2002. "Did the EMS Reduce the Cost of Capital?," Economic Journal, Royal Economic Society, vol. 112(482), pages 786-809, October.
    4. Ravi Jagannathan & Zhenyu Wang, 1996. "The conditional CAPM and the cross-section of expected returns," Staff Report 208, Federal Reserve Bank of Minneapolis.
    5. Fama, Eugene F & French, Kenneth R, 1992. " The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-65, June.
    6. Kpate ADJAOUTÉ & Jean-Pierre DANTHINE, 2003. "European Financial Integration and Equity Returns: A Theory-Based Assessment," FAME Research Paper Series rp84, International Center for Financial Asset Management and Engineering.
    7. Steven Fries & Anita Taci, 2004. "Cost efficiency of banks in transition: Evidence from 289 banks in 15 post-communist countries," Working Papers 86, European Bank for Reconstruction and Development, Office of the Chief Economist.
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