Measuring Financial Integration: Lessons from the Correlation

Monica Billio, Michael Donadelli, Antonio Paradiso () and Max Riedel

No 2015:23, Working Papers from Department of Economics, University of Venice "Ca' Foscari"

Abstract: This paper evaluates and compares the dynamics of the financial integration process as described by di?erent empirical approaches. To this end, a wide range of methods accounting for several dimensions of integration and a novel evaluation scheme � based on the positive association between financial integration and real exchange rate volatility � are employed. Using monthly equity market data running from April 1985 to December 2014 for two groups of countries, we find that (i) the degree of heterogeneity among the patterns generated by the proposed set of financial integration measures is rather low and (ii) the standard unconditional correlation � on average � captures equity market integration rather well and performs � in the worst case � as more sophisticated integration measures.

Keywords: Equity market integration; dynamic correlation; principal components; RER volatility? (search for similar items in EconPapers)
JEL-codes: F15 F44 G15 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2015
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Citations: View citations in EconPapers (4)

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