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Bond market and stock market integration in Europe: a smooth transition approach

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  • Robert-Paul Berben
  • W. Jos Jansen

Abstract

This article investigates whether there has been a structural increase in financial market integration in nine European countries and the US in the period 1980 to 2003. We employ a GARCH model with a smoothly time-varying correlation to estimate the date of change and the speed of the transition between the low and high correlation regimes. Our test produces strong evidence of greater comovement across the board for both stock markets and government bond markets. Dates of change and speeds of adjustment vary widely across country linkages. Stock market integration is a more gradual process than bond market integration. The impact of European monetary union (EMU) is rather limited, as it has mainly affected the timing of bond market correlation gains (but hardly their size) and has had little discernible effect on stock market integration.

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  • Robert-Paul Berben & W. Jos Jansen, 2009. "Bond market and stock market integration in Europe: a smooth transition approach," Applied Economics, Taylor & Francis Journals, vol. 41(24), pages 3067-3080.
    • Handle: RePEc:taf:applec:v:41:y:2009:i:24:p:3067-3080
    DOI: 10.1080/00036840701367572
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    Cited by:

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    4. Silvo Dajcman, 2012. "Comovement between stock and bond markets and the ‘flight-to-quality’ during financial market turmoil – a case of the Eurozone countries most affected by the sovereign debt crisis of 2010–2011," Applied Economics Letters, Taylor & Francis Journals, vol. 19(17), pages 1655-1662.
    5. Yao, Shujie & He, Hongbo & Chen, Shou & Ou, Jinghua, 2018. "Financial liberalization and cross-border market integration: Evidence from China's stock market," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 220-245.
    6. Eduardo Roca & Gurudeo Anand Tularam, 2012. "Which way does water flow? An econometric analysis of the global price integration of water stocks," Applied Economics, Taylor & Francis Journals, vol. 44(23), pages 2935-2944, August.
    7. Nicolas Koch, 2014. "Dynamic linkages among carbon, energy and financial markets: a smooth transition approach," Applied Economics, Taylor & Francis Journals, vol. 46(7), pages 715-729, March.
    8. Muhammad Owais Qarni & Saqib Gulzar, 2020. "Intra-EMU and non-EMU, EU stock markets’ return spillover: evidence from ESDC," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 47(3), pages 543-577, August.
    9. Nikolaos Stoupos & Apostolos Kiohos, 2022. "Euro Area: Towards a European Common Bond? – Empirical Evidence from the Sovereign Debt Markets," Journal of Common Market Studies, Wiley Blackwell, vol. 60(4), pages 1019-1046, July.
    10. Pineda, Julián & Cortés, Lina M. & Perote, Javier, 2022. "Financial contagion drivers during recent global crises," Economic Modelling, Elsevier, vol. 117(C).
    11. Anderson, Randy I. & Chen, Yi-Chi & Wang, Li-Min, 2015. "A range-based volatility approach to measuring volatility contagion in securitized real estate markets," Economic Modelling, Elsevier, vol. 45(C), pages 223-235.
    12. J. Vineesh Prakash & D. K. Nauriyal, 2021. "Integration and Interdependence Among Equity Markets in South Asia: Measuring Through ARDL Bounds Approach," Millennial Asia, , vol. 12(2), pages 229-251, August.

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