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Measuring Financial Integration: Lessons from the Correlation

Author

Listed:
  • Monica Billio

    (Department of Economics, University Of Venice C� Foscari)

  • Michael Donadelli

    (Research Center SAFE, Goethe University Frankfurt)

  • Antonio Paradiso

    (Department of Economics, University Of Venice C� Foscari)

  • Max Riedel

    (Research Center SAFE, Goethe University Frankfurt)

Abstract

This paper evaluates and compares the dynamics of the financial integration process as described by di?erent empirical approaches. To this end, a wide range of methods accounting for several dimensions of integration and a novel evaluation scheme � based on the positive association between financial integration and real exchange rate volatility � are employed. Using monthly equity market data running from April 1985 to December 2014 for two groups of countries, we find that (i) the degree of heterogeneity among the patterns generated by the proposed set of financial integration measures is rather low and (ii) the standard unconditional correlation � on average � captures equity market integration rather well and performs � in the worst case � as more sophisticated integration measures.

Suggested Citation

  • Monica Billio & Michael Donadelli & Antonio Paradiso & Max Riedel, 2015. "Measuring Financial Integration: Lessons from the Correlation," Working Papers 2015:23, Department of Economics, University of Venice "Ca' Foscari".
    • Handle: RePEc:ven:wpaper:2015:23
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    2. Nardo, M. & Ossola, E. & Papanagiotou, E., 2022. "Financial integration in the EU28 equity markets: Measures and drivers," Journal of Financial Markets, Elsevier, vol. 57(C).
    3. Edson Z. Monte & Lucas B. Defanti, 2021. "Dynamic Interdependence and Volatility Transmission from the American to the Brazilian Stock Market," EERI Research Paper Series EERI RP 2021/09, Economics and Econometrics Research Institute (EERI), Brussels.
    4. Edson Zambon Monte & Renzo Caliman Souza & Ricardo Ramalhe Moreira, 2023. "Interrelationships Between the Brazilian Financial Market and Foreign Financial Markets: New Evidence During and After the Subprime Crisis," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 15(5), pages 1-37, May.

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    More about this item

    Keywords

    Equity market integration; dynamic correlation; principal components; RER volatility?;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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