Determinants of European Stock Market Integration

MAGKS Working Paper No. 32-2009

10 Pages Posted: 25 Jul 2009

See all articles by David Buettner

David Buettner

University of Marburg - School of Business & Economics

Bernd Hayo

University of Marburg - School of Business & Economics

Multiple version iconThere are 2 versions of this paper

Date Written: July 20, 2009

Abstract

We analyse the determinants of stock market integration among EU member states for the period 1999–2007. First, we apply bivariate DCC-MGARCH models to extract dynamic conditional correlations between European stock markets, which are then explained by interest rate spreads, exchange rate risk, market capitalisation, and business cycle synchronisation in a pooled OLS model. By grouping the countries into euro area countries, 'old' EU member states outside the euro area, and new EU member states, we also evaluate the impact of euro introduction and the European unification process on stock market integration. We find a significant trend toward more stock market integration, which is enhanced by the size of relative and absolute market capitalisation and hindered by foreign exchange risk between old member states and the euro area. Interest rate spreads and business cycle synchronisation do not appear to play an important role in explaining equity market integration.

Keywords: stock market integration, European unification, DCC-MGARCH model

JEL Classification: E44, F3, F36, G15

Suggested Citation

Buettner, David and Hayo, Bernd, Determinants of European Stock Market Integration (July 20, 2009). MAGKS Working Paper No. 32-2009 , Available at SSRN: https://ssrn.com/abstract=1438025 or http://dx.doi.org/10.2139/ssrn.1438025

David Buettner (Contact Author)

University of Marburg - School of Business & Economics ( email )

Am Plan 2
Marburg, D-35037
Germany

Bernd Hayo

University of Marburg - School of Business & Economics ( email )

Universitaetsstr. 24
Marburg, D-35032
Germany
++49(0)6421-28-23091 (Phone)
++49(0)6421-28-23193 (Fax)

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