European Financial Market Integration in the Wake of the Sovereign Debt Crisis: An Industry Analysis
Söhnke M. Bartram
London Business School - Department of Finance; Warwick Business School - Department of Finance
National Taiwan University
August 6, 2013
This paper uses a copula model to investigate the degree and determinants of European market integration across 10 industries in 12 Euro zone and 8 non-Euro zone stock markets during the period 1992–2011, spanning the introduction of the common European currency, the collapse of Lehman Brothers, and the European sovereign debt crisis. Most of the industries in Euro countries show a dependence increase with the Euro-area after the introduction of the Euro. The effects are strongest in countries with larger market capitalization and in the Financials, Industrials, Consumer Goods, Utilities, Technology and Telecommunications industries. The levels and trends of integration from the copula model are similar to those based on multi-factor model R-Squares on aggregate, but tend to be more stable for individual countries and industries. Overall, the export intensity and interest rate sensitivity of an industry and the economic openness of a country are the most important determinants of changes in equity market integration. The period around the Lehman collapse also shows higher equity market dependence between European countries, while the period of the recent European sovereign debt crisis reveals some doubts by market participants about the future of high-risk countries such as Greece in the monetary union.
Number of Pages in PDF File: 63
Keywords: Euro, International finance, Financial Markets, Dependence, Integration, Copula, GARCH
JEL Classification: F3, F4, G1working papers series
Date posted: June 13, 2011 ; Last revised: August 6, 2013
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