Deep Financial Integration and Volatility

Sebnem Kalemli-Ozcan, Bent Sorensen and Vadym Volosovych

Koç University-TUSIAD Economic Research Forum Working Papers from Koc University-TUSIAD Economic Research Forum

Abstract: We investigate the relationship between financial integration and output volatility at micro and macro levels. Using a very large firm-level dataset (AMADEUS) from 16 European countries, we construct a measure of "deep" financial integration at the regional level based on observations of foreign ownership at the firm-level. We find a significant positive effect of foreign ownership on the volatility of firms' outcomes in static as well as dynamic empirical frameworks. This effect survives aggregation and carries over to regional output, leading to a positive association between deep financial integration and aggregate fluctuations. To identify the causal effect of financial integration on volatility we exploit variation in the transposition dates of the European Union-wide legislative acts from the Financial Services Action Plan (FSAP). We find that high trust regions located in countries who harmonized their capital markets sooner have increased levels of financial integration and volatility.

Keywords: firm volatility; foreign ownership; regional integration; social capital; macro volatility (search for similar items in EconPapers)
JEL-codes: E32 F15 F36 O16 (search for similar items in EconPapers)
Pages: 73 pages
Date: 2010-02, Revised 2010-04
New Economics Papers: this item is included in nep-bec, nep-eec, nep-ifn, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

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Related works:
Journal Article: DEEP FINANCIAL INTEGRATION AND VOLATILITY (2014)
Working Paper: Deep Financial Integration and Volatility (2010)
Working Paper: Deep Financial Integration and Volatility (2010)
Working Paper: Deep Financial Integration and Volatility (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:koc:wpaper:1006

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