Financial Market Dynamics in an Enlarged European Union

Journal of Economic Integration, Vol. 24, pp. 197-221, June 2009

Posted: 6 Sep 2007 Last revised: 31 May 2009

See all articles by Dimitris Kenourgios

Dimitris Kenourgios

National and Kapodistrian University of Athens - Department of Economics

Aristeidis Samitas

University of the Aegean

Nikos Paltalidis

Durham University Business School

Abstract

This paper provides evidence of integration in European equity and bond markets over the period January 2, 1997 to October 1, 2006. Our focus is to examine time-varying correlation dynamics in Euro-area, Central European (CE) and Balkans financial markets, modifying the asymmetric generalized dynamic conditional correlation (AG-DCC) model developed by Cappiello, Engle and Sheppard (Journal of Financial Econometrics, 2006). Using structural breaks, we identify the optimal time decay where financial markets share highest comovement. The results show an increase in the level of dependence during the period of the internet bubble collapse (2000), the Balkans countries start formally discussions to join EU (2000), the introduction of Euro banknotes and coins (2002) and the entry of CE countries in European Union (2004). The CE European and Balkans countries become gradually more integrated with the EMU countries, which is consistent with the interpretation that these countries may be expected to join the Euro in the future.

Keywords: European financial markets, Time-varying financial dependence, Structural breaks, Dynamic conditional correlations

JEL Classification: C1, F3, G1, G15

Suggested Citation

Kenourgios, Dimitris and Samitas, Aristeidis and Paltalidis, Nikos, Financial Market Dynamics in an Enlarged European Union. Journal of Economic Integration, Vol. 24, pp. 197-221, June 2009, Available at SSRN: https://ssrn.com/abstract=956036

Dimitris Kenourgios (Contact Author)

National and Kapodistrian University of Athens - Department of Economics ( email )

1, Sofokleous Str
Office 521
Athens, 10559
Greece
+30 210 3689449 (Phone)

Aristeidis Samitas

University of the Aegean ( email )

8 Michalon str.
Chios
Greece

Nikos Paltalidis

Durham University Business School ( email )

Mill Hill Lane
Durham, Durham DH1 3LB
United Kingdom

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