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Monetary Union effects on European stock market integration: An international CAPM approach with currency risk

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  • Dimitriou, Dimitrios
  • Simos, Theodore

Abstract

This paper explores the evolution of European stock markets integration with the US stock market, after the formation of European Monetary Union (EMU). To this end, we employ a dynamic version of international CAPM in the absence of purchasing power parity. The conditional covariance matrix of asset returns is estimated employing a parsimonious diagonal BEKK multivariate GARCH-in-mean model. The data sample is daily extending from June 1994 to June 2009. The introduction of world-wide information variables into the system reveals that the formation of monetary union has not exerted positive influence on EMU markets integration with US stock market. Moreover at the same time rolling estimates show that member states domestic or idiosyncratic risks have exhibited a lower volatility level.

Suggested Citation

  • Dimitriou, Dimitrios & Simos, Theodore, 2011. "Monetary Union effects on European stock market integration: An international CAPM approach with currency risk," MPRA Paper 37477, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:37477
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    Cited by:

    1. Dimitrios Dimitriou & Theodore Simos, 2013. "International portfolio diversification: an ICAPM approach with currency risk," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 6(2), pages 177-189, September.

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    More about this item

    Keywords

    Market integration; EMU; MGARCH-M specification;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • F30 - International Economics - - International Finance - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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