European Stock Market Integration: Does Emu Matter?

36 Pages Posted: 26 Apr 2005

See all articles by Jian Yang

Jian Yang

University of Colorado at Denver - Business School

Insik Min

Texas A&M University

Qi Li

Texas A&M University - Department of Economics

Date Written: April 2002

Abstract

This study examines the impact of the recent establishment of the Economic and Monetary Union (EMU) on the long-run, short-run and contemporaneous structures of integration among eleven European stock markets and the US. The results show that although two cointegrating vectors exist both before and after the establishment of the EMU, the long-run linkages among these markets have generally been strengthened after the establishment of the EMU as equilibria are restored more quickly after system-wide shocks. Generalized impulse response analysis and generalized forecast error variance decomposition further indicates that large EMU markets (Germany, France, Italy, Netherlands) are more integrated with each other after the establishment of the EMU. Several small EMU markets are also more integrated with the large EMU markets while the three smallest EMU markets (Austria, Belgium and Ireland) are more isolated from other EMU markets after the EMU was launched. The EMU markets seem to be less integrated with the UK after establishment of the EMU, while no clear pattern has emerged yet regarding their integration with the US market. The examination of the contemporaneous structure of integration also yields similar inference.

Keywords: market integration, European stock markets, EMU, generalized impulse response

JEL Classification: G15, C32

Suggested Citation

Yang, Jian and Min, Insik and Li, Qi, European Stock Market Integration: Does Emu Matter? (April 2002). Available at SSRN: https://ssrn.com/abstract=709626 or http://dx.doi.org/10.2139/ssrn.709626

Jian Yang (Contact Author)

University of Colorado at Denver - Business School ( email )

1250 14th St.
Denver, CO 80204
United States

Insik Min

Texas A&M University

Langford Building A
798 Ross St.
College Station, TX 77843-3137
United States

Qi Li

Texas A&M University - Department of Economics ( email )

5201 University Blvd.
College Station, TX 77843-4228
United States
979-845-7349 (Phone)

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