Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in C O N T E N T S Abstract 4Non-technical summary 5

This paper investigates whether comovements between euro area equity returns at national and industry level changed after the introduction of the euro. By adopting a regression quantile-based methodology, we find that after 1999 the degree of comovements among euro area national equity markets was augmented. By explicitly controlling for the impact of global factors, we show that this result cannot be explained by recent worldwide trends. A more refined analysis based on an industry breakdown suggests that the increase in national index comovements is mainly driven by financial, industrial, and consumer services sectors.

In 2006 all ECB publications feature a motif taken from the €5 banknote. WO R K I N G PA P E R S E R I E S N O 6 8 3 / O C TO B E R 2 0 0 6This paper can be downloaded without charge from http://www.ecb.int or from the Social Science Research Network electronic library at http://ssrn.com/abstract_id=936591 C O N T E N T S Tables and figures AbstractThis study assesses the degree of financial integration for a selected number of new EU member states between themselves and with the euro zone. Within the framework of a factor model for market returns, we measure integration as the amount of variance explained by the common factor relative to the local components. We show that this measure of integration coincides with return correlation. Correlations are proxied by comovements, estimated via a regression quantile-based methodology. We find that the largest new member states, the Czech Republic, Hungary and Poland, exhibit strong comovements both between themselves and with the euro area. As for smaller countries, only Estonia and to a less extent Cyprus show increased integration both with the euro zone and the block of large economies. In the bond markets, we document an increase in integration only for the Czech Republic versus Germany and Poland. Lastly, all these countries went through these changes at a roughly similar pace.There is no unanimous definition of integration in the literature. A quite general definition relates market and economic integration to a strengthening of the financial and real linkages between economies. The empirical analyses which refer to this background are usually conducted by investigating the changes in the comovements across countries between selected financial asset returns. In this paper we follow this approach.We study integration between new EU member states and the euro zone across two different periods: the pre-convergence and the convergence periods. We employ a simple factor model for market returns which distinguishes between common and local components. The model allows us to adopt an intuitive measure of integration: the higher the amount of return variance explained by the common factor relative to the local components, the higher the degree of integration. The related economic intuition that, as trade barriers and capital controls are removed within an economic area, firms' cash flows will become more subject to common shocks. Ceteris paribus this implies an increase in comovements of firms' returns. Therefore, although we express market returns in terms of a factor model, differently from previous studies on integration we do not estimate the model itself nor its loading factors, but rather exploit its implication in terms of return comovements.Return comovements are estimated with the methodology introduced by Cappiello, Gérard and Manganelli (2005). This approach possesses, inter alia, two advantages. First, contrary to standard correlation measures, it is robust to time varying volatility and departure from normality. Second, it offers a simple and intuitive vi...

In 2006 all ECB publications feature a motif taken from the €5 banknote. WO R K I N G PA P E R S E R I E S N O 6 8 6 / O C TO B E R 2 0 0 6This paper can be downloaded without charge from http://www.ecb.int or from the Social Science Research Network electronic library at http://ssrn.com/abstract_id=936891 C O N T E N T S Abstract 4Non-technical summary 5

The views expressed in this paper do not necessarily refl ect those of the European Central Bank. Information on all of the working papers published in the ECB's Working PaperSeries can be found on the ECB's website, http://www.ecb.europa.eu/pub/scientifi c/ wps/date/html/index.en.html