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Time varying integration of European stock markets and monetary drivers

Hyunchul Lee and Heeho Kim ()

Journal of Empirical Finance, 2020, vol. 58, issue C, 369-385

Abstract: This study analyzes time-varying integration of stock markets among fourteen European countries and its monetary drivers relevant to the two contrasting events — the introduction of Euro in 1999 and banking crisis of GIIPS in 2011. Our panel analysis reports evidence that monetary performance convergence, lower differentials in interest rates and inflation among EU countries, has been a key driver for the increase in integration of EU stock markets post EMU. Our qualitative analysis indicates that post EMU, the GDP differences among the EU countries have reverse relations with monetary performance convergence. This finding is in line with those of our quantitative study with a price-based indicator for integration.

Keywords: Stock market integration; Realized correlation; EMU; Monetary performance convergence (search for similar items in EconPapers)
JEL-codes: E20 F36 G10 G11 G15 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.jempfin.2020.07.004

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Journal of Empirical Finance is currently edited by R. T. Baillie, F. C. Palm, Th. J. Vermaelen and C. C. P. Wolff

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