Evolution of international stock and bond market integration: Influence of the European Monetary Union

By Suk-Joong Kim, Fariborz Moshirian, E. Wu. 2006

235 citations recorded by the source corpus.

This chapter examines the dynamic relationship between daily stock and government bond returns of selected countries over the past decade to infer the state and progress of inter-financial market integration. We proceed to empirically investigate the influence of the European Monetary Union (EMU) on time-variations in inter-stock-bond market integration/ segmentation dynamics using a two-step procedure. First, we document the downward trends in time-varying conditional correlations between stock and bond market returns in European countries, Japan and the US. Second, we investigate the causality and determinants of this interdependent relationship, in particular, whether the various macroeconomic convergence criteria associated with the EMU have played a significant role. We find that real economic integration and the reduction in currency risk have generally had the desired effect on financial integration but monetary policy integration may have created uncertain investor sentiments on the economic future of the European monetary union, thereby stimulating a flight to quality phenomenon.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/cd84142ca3bcddb98651b8f5e2776f052371737d

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Citations in the corpus

How Efficient is the European Football Betting Market? Evidence from Arbitrage and Trading Strategies (2009, result): “The results are directly comparable with those reported for fi nancial markets in terms of arbitrage opportunities (e.g., see Shleifer, 2000; Froot and Dabora, 1999) and international effi ciency (e.g., see Kim et al., 2006).”
The effect of economic policy uncertainty on the long-term correlation between U.S. stock and bond markets (2017, background): “The timevarying relationship between them has received considerable attention, and there have been many attempts to understand their co-movement during the past few years (Kim et al., 2006; Connolly et al., 2005; Aslanidis and Christiansen, 2014; Chen et al., 2014).”
Did the S.A.R.S. epidemic weaken the integration of Asian stock markets? Evidence from smooth time-varying cointegration analysis (2018, background): “Second, it is intuitive that financial market integration changes with economic conditions (Kim et al., 2006).”
Geopolitical risks and the oil-stock nexus over 1899–2016 (2017, methodology): “2 Multivariate GARCH models have been widely used to study covariance of stocks and bonds (Longin and Solnik 1995; Kim et al. 2006; Connolly et al. 2005, 2007; Yang et al 2009; Kollias et al, 2013b).”
Dependence structure and extreme comovements in international equity and bond markets (2011, unknown): “4 The theory of this useful tool dates back to Sklar (1959) and a clear presentation can be found in Nelsen (1999). Well designed to analyze nonlinear dependence copulas were initially used by statisticians for nonparametric estimation and measure of dependence of random variables (see Genest and Ri”
Dynamic European stock market convergence: Evidence from rolling cointegration analysis in the first euro-decade (2010, background): “As Kim et al. (2006) note, these are the largest and most developed markets in the euro area while the four respective countries represent, in terms of GDP, the largest economies in the currency union and the industrial backbone of the euro-area economy.”
EMU and European Government Bond Market Integration (2010, unknown): “4 Kim et al. (2006) present evidence that the introduction of the monetary union has Granger caused an apparent segmentation between bond and stock markets within Europe.”
Time-varying integration in European government bond markets (2014, unknown): “…bond markets in the EU-15 context (studies of this issue include ACGP, 2010, Geyer, Kossmeier and Pischer, 2004, Gómez-Puig, 2009a and 2009b, and Pagano and Von Thadden, 2004), literature on the new EU members (Gardó and Martin, 2010, Kim et al., 2006 or Nickel et al., 2009) is even scarcer.”