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Country pair-correlations as a measure of financial integration: the case of the Euro equity markets

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  • Manuela CROCI

    ([n.a.])

Abstract

In financial economics, co-movements between equity returns are generally interpreted as a measure of equity market integration. In line with this idea, the paper investigates whether the euro equity markets have become less segmented over the last decade referring to three different estimates of pair-correlations, i.e. unconditional correlations, ex-post rolling estimates of correlations and dynamic conditional correlations (DCC). The analysis shows that pair-correlations within the euro area have indeed increased, suggesting higher financial integration of the euro equity markets. Additionally, the paper addresses the related issue of which factors have driven this integration process. The idea is that the extent of market integration may depend upon certain macroeconomic factors, that influence the degree of economic integration across countries, and upon the elimination of exchange rate volatility associated with Stage Three of EMU. The findings show that the increase in integration is explained by the relaxation of restrictions to capital mobility and of institutional barriers and by the economic convergence in Europe, while Stage Three of EMU has not further boosted integration.

Suggested Citation

  • Manuela CROCI, 2004. "Country pair-correlations as a measure of financial integration: the case of the Euro equity markets," Working Papers 201, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
  • Handle: RePEc:anc:wpaper:201
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    Cited by:

    1. Vladimir Borgy & Valérie Mignon, 2009. "Taux d’intérêt et marchés boursiers : une analyse empirique de l’intégration financière internationale," Économie et Prévision, Programme National Persée, vol. 187(1), pages 105-121.
    2. Renato BALDUCCI, 2005. "Public Expenditure and Economic Growth. A critical extension of Barro's (1990) model," Working Papers 240, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    3. Sukriye Tuysuz, 2012. "How have the Turkish post-2001 stabilization reforms impacted on the conditional correlation between the Turkish and the main foreign stock markets?," Applied Financial Economics, Taylor & Francis Journals, vol. 22(22), pages 1881-1898, November.
    4. Stefania BUSSOLETTI & Roberto ESPOSTI, 2004. "Regional Convergence, Structural Funds and the Role of Agricolture in the EU. A Panel-Data Approach," Working Papers 220, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    5. Roberto ESPOSTI & Pierpaolo PIERANI, 2005. "Price, Private Demand and Optimal Provision of Public R&D in Italian Agriculture," Working Papers 238, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.

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    More about this item

    Keywords

    DCC model; euro equity markets; financial integration; pair-correlations;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • G1 - Financial Economics - - General Financial Markets
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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