European Stock Market Integration: Does Emu Matter?
36 Pages Posted: 26 Apr 2005
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: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
By Wenchao Liao
-
Agreements and Disagreements of Expert Committee on Commodity Futures
-
Integration of Mortgage and Capital Markets: Evidence in the Spanish Case
By Roman Ferrer, Cristobal Gonzalez, ...
-
A Common Factor Analysis for the US and the German Stock Markets During Overlapping Trading Hours
By Michael Flad and Robert Jung
-
Open and Closed Positions and Stock Index Futures Volatility
By Oscar Carchano, Julio J. Lucia, ...