Assessing time-varying stock market integration in Economic and Monetary Union for normal and crisis periods

Abstract

In this paper, we examine the stock market integration process amongst 17 Economic and Monetary Union (EMU) countries from January 2002 to June 2013 over a normal period as well as for the Global Financial Crisis (GFC) and Eurozone Debt Crisis (EDC) periods. We classify the economies in three groups (A, B and C) based on their GDP to examine whether the economic size influences financial integration. Seven indicators are used for the purpose, namely, beta convergence, sigma convergence, variance ratio, asymmetric DCC, dynamic cointegration, market synchronisation measure and common components approach. The results suggest that large-sized EMU economies (termed as Group A) exhibit strong stock market integration. Moderate integration is observed for middle-sized EMU economies with old membership (termed as Group B). Small-sized economies (termed as Group C) economies seemed to be least integrated within the EMU stock market system. The findings further suggest presence of contagion effects as one moves from normal to crisis periods, which are specifically stronger for more integrated economies of Group A. We recommend institutional, regulatory and other policy reforms for Group B and especially Group C to achieve higher level of integration.

Time varying integration amongst the South Asian equity markets: An empirical study

“…However, Morana and Beltratti (2002), Fratzscher (2002), Kim et al (2005) and Bartram, Taylor, and Wang (2007) report that the integration in the region is evolving over time and far from being complete. Sehgal, Gupta, and Deisting (2016) used a battery of price-based indicators to conform that there is segment of levels of equity market integration for EMU countries wherein important and prominent countries like Germany, France, Netherlands, Italy, Spain and Belgium exhibit strong financial integration while others show relatively low levels of integration.…”

Time-Varying Bond Market Integration in EMU

“…These results explain the higher values of integration indicators for bond markets than those of stock markets in our previous work (Sehgal et al 2014). In contrast to stock market indices, the characteristics of the underlying financial instruments, like maturity, coupon payments, the identity of the issuer, in case of bonds are similar across countries and remain relatively stable over time.…”

“…The results for all the indicators show that Group A consisted with large-sized economies and Group B consisted with medium sized economies do not exhibit heterogeneity in their progress of integration over time, unlike in the case of EMU stock markets as shown in our previous study (Sehgal et al 2014). The only clear distinction in the progress of integration was observed between the two categories, which are GIIPS and non-GIIPS economies during the crisis period.…”

Dynamic Linkages between Brics and Other Emerging Equity Markets

“…The dynamic conditional correlation (ADCC Model) is estimated using two-day moving average of log-returns to measure the co-movements between the markets. Sehgal, Gupta, & Deisting [42] find that correlation coefficients for the advanced economies of the European Economic and Monetary Union (Belgium, France, Germany, Italy, Netherlands and Spain) remained over 0.84 during all the sub-periods of their study. In contrast, we find that the correlations between EMEs including BRICS are moderate.…”