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Financial Integration of New EU Member States

74 Pages Posted: 9 Nov 2006  

Lorenzo Cappiello

European Central Bank (ECB)

Arjan Kadareja

European Central Bank (ECB)

Bruno Gerard

Norwegian School of Management (BI) - Department of Financial Economics

Simone Manganelli

European Central Bank (ECB)

Date Written: October 2006

Abstract

This study assesses the degree of 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 measure integration as the amount of variance explained by the common factor relative to the local components. We show that this measure of integration coincides with return correlation. Correlations are proxied by comovements, estimated via a regression quantile-based methodology. We find that the largest new member states, the Czech Republic, Hungary and Poland, exhibit strong comovements both between themselves and with the euro area. As for smaller countries, only Estonia and to a less extent Cyprus show increased integration both with the euro zone and the block of large economies. In the bond markets, we document an increase in integration only for the Czech Republic versus Germany and Poland.

Keywords: Integration, new EU member states, regression quantile

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 (October 2006). ECB Working Paper No. 683. Available at SSRN: https://ssrn.com/abstract=936591

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

Norwegian School of Management (BI) - Department of Financial Economics ( email )

N-0442 Oslo
Norway

Simone Manganelli

European Central Bank (ECB) ( email )

Kaiserstrasse 29
Frankfurt am Main, 60311
Germany

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

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