Emu and European Stock Market Integration

30 Pages Posted: 4 Oct 2001

See all articles by Gikas A. Hardouvelis

Gikas A. Hardouvelis

University of Piraeus; Centre for Economic Policy Research (CEPR)

Richard Priestley

Norwegian Business School

Dimitrios Malliaropulos

University of Piraeus - Department of Banking and Financial Management; National Bank of Greece

Date Written: September 2001

Abstract

The paper examines whether or not the convergence of European economies towards Economic and Monetary Union (EMU) and the launch of the single currency leads to an increase in stock market integration through a reduction in investment barriers. We estimate a conditional asset pricing model, which allows for a time-varying degree of integration that measures the importance of EU-wide risk relative to country-specific risk. The model accounts for intra-European currency risk, time-varying quantities and prices of risk. The results indicate that the degree of integration is closely related to forward interest differentials vis-a-vis Germany, i.e. to the probability of a country joining EMU. As the probability of the single currency materializing increases, restrictions on holding foreign assets become less binding, leading to higher market integration.

Keywords: Keywords: CAPM, Integration of Stock Markets, European Monetary Union.

JEL Classification: G12, G15

Suggested Citation

Hardouvelis, Gikas A. and Priestley, Richard and Malliaropulos, Dimitrios, Emu and European Stock Market Integration (September 2001). Available at SSRN: https://ssrn.com/abstract=280775 or http://dx.doi.org/10.2139/ssrn.280775

Gikas A. Hardouvelis

University of Piraeus ( email )

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece
+32010 4142323 (Phone)
+3210 6724848 (Fax)

HOME PAGE: http://www.eurobank.gr

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Richard Priestley

Norwegian Business School ( email )

Nydalsveien
37
N-0442 Oslo, 0283
Norway
47 46410515 (Phone)

Dimitrios Malliaropulos (Contact Author)

University of Piraeus - Department of Banking and Financial Management ( email )

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece
(+30) 210 3341527 (Phone)
(+30) 210 3341702 (Fax)

National Bank of Greece ( email )

86 Eolou Str.
10232 Athens
Greece
+30 1 3251133 (Fax)

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