The European Union, the Euro, and Equity Market Integration
Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)
Campbell R. Harvey
Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)
Christian T. Lundblad
University of North Carolina Kenan-Flagler Business School
University of Washington - Michael G. Foster School of Business
October 1, 2012
AFA 2012 Chicago Meetings Paper
We use industry valuation differentials across European countries to study the impact of membership in the European Union as well as the Eurozone on both economic and financial integration. In integrated markets, discount rates and expected growth opportunities should be similar within one industry, irrespective of the country, implying narrowing valuation differentials as countries become more integrated. Our analysis of the 1990 to 2007 period shows that membership in the EU significantly lowered discount rate and expected earnings growth differentials across countries. In contrast, the adoption of the Euro was not associated with increased integration. Our results do not change when the sample is extended to include the recent crisis period.
Number of Pages in PDF File: 48
Keywords: Market Integration, Europe, European Union, Euro, Eurozone crisis, Euro crisis, Common currency, Europe crisis
Date posted: March 21, 2010 ; Last revised: October 13, 2012
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