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Financial Integration of Stock Markets among New EU Member States and the Euro Area

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  • Ian Babetskii
  • Lubos Komarek
  • Zlatuse Komarkova

Abstract

The paper considers the empirical dimension of financial integration among stock markets in four new European Union member states (the Czech Republic, Hungary, Poland and Slovakia) in comparison with the euro area. The main objective is to test for the existence and determine the degree of the four states’ financial integration relative to the euro currency union. The analysis is performed at the country level (using national stock exchange indices) and at the sectoral level (considering banking, chemical, electricity and telecommunication indices). Our empirical evaluation consists of (1) an analysis of alignment (by means of standard and rolling correlation analysis) to outline the overall pattern of integration; (2) the application of the concept of beta convergence (through the use of time series, panel and state-space techniques) to identify the speed of integration; and (3) the application of so-called sigma convergence to measure the degree of integration. We find evidence of stock market integration on both the national and sectoral levels between the Czech Republic, Hungary, Poland and the euro area.

Suggested Citation

  • Ian Babetskii & Lubos Komarek & Zlatuse Komarkova, 2007. "Financial Integration of Stock Markets among New EU Member States and the Euro Area," Working Papers 2007/7, Czech National Bank.
    • Handle: RePEc:cnb:wpaper:2007/7
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    More about this item

    Keywords

    Beta convergence; new EU member states; sigma convergence; stock markets.;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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