Does Monetary Policy Impact Market Integration? Evidence from Developed and Emerging Markets

Massimiliano Caporin, Loriana Pelizzon () and Alberto Plazzi

No 17-47, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We investigate the impact of monetary announcements of the ECB and the FED on integration in the equity and sovereign CDS markets for a large cross-section of 18 Developed and 21 Emerging countries over 2006 to 2015. The effect of both announcements is negative or muted in the pre-crisis period, while it turns strongly positive during the financial crisis of 2007-2009. ECB interventions lead to more integration in the equity market during 2010 to 2012, but dis-integration in the CDS market in the ECB Quantitative Easing period (2013 to 2015), especially for emerging countries. In contrast, FED announcements are perceived as global factors in the CDS emerging market and are accompanied with an increase in integration both when the FED implements and unwinds its unconventional measures. The relation between the global factor and the U.S. market increases during FED interventions, the same does hold for the European market during ECB announcements. The exposure of emerging markets to outside monetary policy shocks can be explained in terms of their degree of trade and financial openness.

Keywords: unconventional monetary policy; integration; international equity markets; CDS (search for similar items in EconPapers)
JEL-codes: E58 G15 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2017-05
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1747

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