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Economic and Financial Integration in Europe

13 Pages Posted: 17 Apr 2017  

Geert Bekaert

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); Duke Innovation & Entrepreneurship Initiative

Christian T. Lundblad

University of North Carolina Kenan-Flagler Business School

Stephan Siegel

University of Washington - Michael G. Foster School of Business

Date Written: April 7, 2017

Abstract

We use industry valuation differentials across European countries to study the impact of membership in the European Union as well as the Eurozone on 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 lowers discount rate and expected earnings growth differentials across countries. In contrast, the adoption of the Euro is not associated with increased integration. Our main finding that EU membership increases integration, while Euro adoption does not, does not change when the sample period is extended to 2016. However, we observe that the EU membership effect is smaller between 2008 and 2016 compared to the pre-crisis period.

See related papers:
The European Union, the Euro, and Equity Market Integration and
What Segments Equity Markets?

Keywords: Market Integration, Europe, European Union, Euro, Eurozone crisis, Euro crisis, Brexit, Common currency, Europe crisis

JEL Classification: G15, G12, F30, F36, F65, O16

Suggested Citation

Bekaert, Geert and Harvey, Campbell R. and Lundblad, Christian T. and Siegel, Stephan, Economic and Financial Integration in Europe (April 7, 2017). Duke I&E Research Paper No. 2017-09; Columbia Business School Research Paper No. 17-42. Available at SSRN: https://ssrn.com/abstract=2953006 or http://dx.doi.org/10.2139/ssrn.2953006

Geert Bekaert

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Campbell Harvey (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7768 (Phone)
919-660-8030 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Christian Lundblad

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States
919-962-8441 (Phone)

Stephan Siegel

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

HOME PAGE: http://faculty.washington.edu/ss1110/

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