Stock market synchronization and monetary integration

Sébastien Wälti
Authors registered in the RePEc Author Service: Sébastien Waelti

Journal of International Money and Finance, 2011, vol. 30, issue 1, 96-110

Abstract: This paper focuses on the relationship between stock market comovements and monetary integration. A panel specification is used to explain bilateral stock market return correlations between fifteen developed economies over the period 1975-2006. Time fixed effects are included to capture global shocks and we also examine the role of bilateral trade linkages and international financial integration. Monetary integration leads to stronger stock market synchronization, both through the elimination of exchange rate volatility and through the common monetary policy and the convergence of inflation expectations. Trade and financial integration also contribute to higher stock market return comovements.

Keywords: Stock; markets; Correlation; Comovement; Monetary; union; Exchange; rate; regime (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (26)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:30:y:2011:i:1:p:96-110

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