Financial Integration of New EU Member States

46 Pages Posted: 15 Mar 2006

See all articles by Lorenzo Cappiello

Lorenzo Cappiello

European Central Bank (ECB)

Arjan Kadareja

European Central Bank (ECB)

Bruno Gerard

BI Norwegian Business School - Department of Finance

Simone Manganelli

European Central Bank (ECB)

Date Written: December 2005

Abstract

This study assesses the degree of economic and financial integration for a selected number of new EU member states between themselves and with the euro zone. Within the framework of a factor model for market returns, we adopt an intuitive measure of integration: the higher the amount of return variance explained by the global factor relative to the local components, the higher the degree of integration. Next we derive a relationship between return correlation and the measure of integration. Economic and financial integration is measured with a regression quantile-based methodology and a variance decomposition approach. When analysing equity markets, evidence suggests that for Czech Republic, Hungary and Poland the degree of integration has increased significantly over the last few years. This is not the case for Cyprus, Estonia, Latvia and Slovenia. As for the government bond markets, we do not observe a significant increase in integration.

Keywords: Integration, new EU member states, regression quantile, variance decomposition

JEL Classification: C32, F30, G12

Suggested Citation

Cappiello, Lorenzo and Kadareja, Arjan and Gerard, Bruno and Manganelli, Simone, Financial Integration of New EU Member States (December 2005). Available at SSRN: https://ssrn.com/abstract=891023 or http://dx.doi.org/10.2139/ssrn.891023

Lorenzo Cappiello (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344 8765 (Phone)

Arjan Kadareja

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Bruno Gerard

BI Norwegian Business School - Department of Finance ( email )

Nydalsveien 37
Oslo, N-0484
Norway
+4746410506 (Phone)

Simone Manganelli

European Central Bank (ECB) ( email )

Kaiserstrasse 29
Frankfurt am Main, 60311
Germany

HOME PAGE: http://www.simonemanganelli.org

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