Assessing Time-Varying Stock Market Integration in EMU for Normal and Crisis Periods

Sanjay Sehgal, Priyanshi Gupta () and Florent Deisting

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper, we examine the financial integration process amongst 17 EMU countries from January 2002 to June 2013 over a normal period as well as for the Global Financial Crisis (GFC) and Eurozone Debt Crisis (EDC) periods. We classify the economies in three groups (A, B and C) based on their GDP to examine whether the economic size influences financial integration. Seven indicators are used for the purpose, namely, Beta Convergence, Sigma Convergence, Variance Ratio, Asymmetric DCC, Dynamic Cointegration, Market Synchronisation Measure and Common Components Approach. The results suggest that large sized EMU economies (termed as Group A) exhibit strong financial integration. Moderate financial integration is observed for middle-sized EMU economies with old membership (termed as Group B). Small sized economies (termed as Group C) economies seemed to be least integrated within the EMU stock market system. The findings further suggest presence of contagion effects as one moves from normal to crisis periods, which are specifically stronger for more integrated economies of Group A. We recommend institutional, regulatory and other policy reforms for Group B and especially Group C to achieve higher level of integration.

Keywords: EMU; Global Financial crisis; Eurozone Debt Crisis; Stock Market integration; Time-varying financial integration; Beta Convergence; Sigma Convergence; Variance Ratio; Asymmetric DCC; Rolling Cointegration; Carhart four factor model; Markov Regime Switching Model (search for similar items in EconPapers)
JEL-codes: C22 E44 F36 G14 G15 (search for similar items in EconPapers)
Date: 2014-10-26
New Economics Papers: this item is included in nep-eec, nep-fmk and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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