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How does European Integration affect the European Stock Markets?

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  • Erdogan, Burcu

Abstract

This paper examines the integration of stock markets in Germany, France, Netherlands, Ireland and UK over January 1973-August 2008 at the aggregate market and industry level considering the following industries: basic materials, consumer goods, industrials, consumer services, health care and financials. The analysis is carried out by using correlation analysis, ß-convergence and s-convergence methods. ß-convergence serves to measure the speed of convergence and s-convergence serves to measure the degree of financial integration. It might be expected a priori that European stock markets have converged during the process of monetary, economic and financial integration in Europe. This study offers evidence for an increasing degree of integration both at the aggregate level and also at the industry level, although some differences in the speed and degree of convergence exist among stock markets. Surprisingly, there is an upswing of cross sectional dispersion for health care industry, which is more prone to regional shocks. The other industries show a significant s-convergence. The average half-life of a shock to convergence changes at a range from 5.75 days for aggregate market to 10.25 days for consumer goods.

Suggested Citation

  • Erdogan, Burcu, 2009. "How does European Integration affect the European Stock Markets?," University of Göttingen Working Papers in Economics 80, University of Goettingen, Department of Economics.
    • Handle: RePEc:zbw:cegedp:80
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    References listed on IDEAS

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    1. Kalin Hristov & Rossen Rozenov, 2009. "Financial Convergence in the New EU Member States," Working Paper / FINESS 1.2, DIW Berlin, German Institute for Economic Research.
    2. Taylor, Mark P & Tonks, Ian, 1989. "The Internationalisation of Stock Markets and the Abolition of U.K. Exchange Control," The Review of Economics and Statistics, MIT Press, vol. 71(2), pages 332-336, May.
    3. Gikas A. Hardouvelis & Dimitrios Malliaropulos & Richard Priestley, 2006. "EMU and European Stock Market Integration," The Journal of Business, University of Chicago Press, vol. 79(1), pages 365-392, January.
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    2. Babecký, Jan & Komárek, Lubos & Komárková, Zlatuse, 2012. "Integration of Chinese and Russian stock markets with world markets : National and sectoral Perspectives," BOFIT Discussion Papers 4/2012, Bank of Finland, Institute for Economies in Transition.
    3. Peter, Manuel, 2015. "Konvergenz der europäischen Aktienmärkte: Eine Analyse der Entwicklungen und Herausforderungen für Investoren," Arbeitspapiere 150, University of Münster, Institute for Cooperatives.
    4. Babecký, Jan & Komárek, Lubos & Komárková, Zlatuse, 2012. "Integration of Chinese and Russian stock markets with world markets: National and sectoral Perspectives," BOFIT Discussion Papers 4/2012, Bank of Finland Institute for Emerging Economies (BOFIT).
    5. Mevlud Islami & Paul Welfens, 2013. "Financial market integration, stock markets and exchange rate dynamics in Eastern Europe," International Economics and Economic Policy, Springer, vol. 10(1), pages 47-79, March.
    6. Ekaterina Dorodnykh, 2012. "What Is the Degree of Convergence among Developed Equity Markets?," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 3(2), pages 2-16, April.
    7. Anita Radman Peša & Elżbieta Wrońska-Bukalska & Jurica Bosna, 2017. "ARDL panel estimation of stock market indices and macroeconomic environment of CEE and SEE countries in the last decade of transition," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 16(3), pages 205-221, December.

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    More about this item

    Keywords

    Financial integration; EU; stock markets; ß-convergence; s-convergence; correlation analysis;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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