Dynamic stock market integration driven by the European Monetary Union: An empirical analysis

By Suk-Joong Kim, Fariborz Moshirian, E. Wu. 2005

385 citations recorded by the source corpus.

This paper investigates the impacts of the introduction of the euro on the pattern of stock market linkages and the dynamic process of stock market integration over the period from 1989-2003. On a regional level, we examine integration among stock market indices of European Union (EU) countries with the European Monetary Union (EMU) while on a global level, integration of the EMU vis-a-vis Japan and the US are analyzed. We assess stock market integration within the context of a bivariate exponential generalized autoregressive conditional heteroscedasticity (EGARCH) framework with time varying conditional correlations. First, we discuss that European stock market integration has undergone a clear regime shift. Second, we find a striking number of significant return and volatility spillovers within the EMU and for the entire EMU region with the US and Japan and that these linkages have strengthened with currency unification. Third, we show that the introduction of the euro has indeed caused this stock market integration. Finally, our seemingly unrelated regression estimations (SURE) find that stock market integration is a persistent and seasonal process as its main determinants are the existing levels of integration and stock market development and there are signs of a positive January effect. While the introduction of the monetary union has in general been a significant driving force behind this regional and global phenomenon, the effectiveness of the different economic convergence criteria associated with the EMU in driving this process differs across member states. On a global level, the commitment to price stability has significantly strengthened stock market integration between the EMU and the US whilst convergence in industrial production has increased ties between the EMU and Japan.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/d37c65725eee1b9f8c8b8042413cbf451f167ead

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

In Finance

Citations in the corpus

Dynamic correlation analysis of financial contagion: Evidence from the Central and Eastern European markets☆ (2011, result): “…(Hamao et al., 1990; Theodossiou and Lee, 1993; Longin and Solnik, 1995; Meric and Meric, 1997; Goetzmann et al. 2001; Cappiello et al., 2006; Kim et al., 2005), while some recent studies have extended this line of research 1 Forbes and Rigobon (2002) define contagion as significant…”
Government Quality Determinants of Stock Market Performance in African Countries (2011, neutral): “This results in a lower cost of capital for firms and lower transaction cost for investors(Kim et al.,2005).”
Evolution of international stock and bond market integration: Influence of the European Monetary Union (2006, neutral): “…rapidly integrated with EMU stock markets in the few years leading up to the introduction of the Euro, corroborating with Fratzscher’s (2002) and Kim et al.’s (2005) stock market integration studies and increases in Cappiello et al.’s (2003) average contemporaneous correlation calculations for…”
Stock Market Integration For The Transition Economies: Time‐Varying Conditional Correlation Approach (2008, neutral): “In the case of the EU, the effect of the Euro on the linkage among the developed EU stock markets is investigated by Cheung and Westermann (2001), Billio and Pelizzon (2003), Westermann (2004) and Kim et al (2005).”
Dynamic European stock market convergence: Evidence from rolling cointegration analysis in the first euro-decade (2010, methodology): “As Kim et al. (2005) note, the creation of a currency union without a single financial market presents an interesting case to examine the impact it has on market convergence and integration.”
Equity Market Integration in Emerging Balkan Markets (2011, background): “Kim et al. (2005) support that only the existence of an equilibrating process and not the driving forces behind the long-run equilibrium are investigated in standard cointegration analyses.”
Volatility spillovers and cross-hedging between gold, oil and equities: Evidence from the Gulf Cooperation Council countries (2017, neutral): “Daily returns are used to capture the short-lived effects of volatility spillovers which would otherwise appear weak in longer horizons (Kim et al. 2005).”
Sudden changes in volatility: The case of five central European stock markets (2009, background): “Kim et al. (2005) find that increased stability and higher levels of integration have emerged from the European Monetary Union in the post-euro era.”
Eurozone crisis and BRIICKS stock markets: Contagion or market interdependence? (2013, background): “…at the time when the economy is completely in the grip of downturn caused by the rapid transmission of shocks originating from neighboring or far distant country (see Aloui et al., 2011; Cappiello et al., 2006; Kim et al., 2005; Marçal et al., 2011; Phylaktis and Ravazzolo, 2005; Samarakoon, 2011).”