Market Integration Dynamics and Asymptotic Price Convergence in Distribution

Alfredo Garcia-Hiernaux, David Esteban Guerrero Burbano and Michael McAleer
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David Esteban Guerrero Burbano: CUNEF (Colegio Universitario de Estudios Financieros), Madrid, Spain.

No 2015-18, Documentos de Trabajo del ICAE from Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico

Abstract: This paper analyzes the market integration process of nominal prices, develops a model to analyze market integration, and presents a test of increasing market integration. A distinction is made between the economic concepts of price convergence in mean and variance. When both types of convergence occur, prices are said to converge in distribution. We present concepts and definitions related to the market integration process, link these to price convergence in distribution, argue that the Law of One Price is not a sufficient condition for market integration, and present a test of price convergence in distribution. We apply our methodology to two different cases, namely the integration of: i) the inland grains market in 19th Century USA, and ii) the Eurozone long-term bonds market after the euro entered circulation.

Keywords: Regional and global markets; Integration; Asymptotic price convergence; Mean; Variance; Distribution. (search for similar items in EconPapers)
JEL-codes: C22 C32 F15 N70 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2015-11
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https://eprints.ucm.es/id/eprint/34143/1/1518.pdf (application/pdf)

Related works:
Journal Article: Market integration dynamics and asymptotic price convergence in distribution (2016)
Working Paper: Market Integration Dynamics and Asymptotic Price Convergence in Distribution (2015)
Working Paper: Market Integration Dynamics and Asymptotic Price Convergence in Distribution (2013)
Working Paper: Market Integration Dynamics and Asymptotic Price Convergence in Distribution (2013)
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