Effects of Economic Convergence on Stock Market Returns in Major EMU Member Countries

European stock market integration: Fact or fiction?

“…The drive towards a single European currency was harmonizing monetary and, to a lesser extent, fiscal policies, which promoted the stock market integration in the late 1990s (Fratzscher, 2002). The author's conclusion is in line with Fama and French (1989), Ferson and Harvey (1991), Jaganathan and Wang (1996), and Phengpis et al (2004) who had already identified this real integration, that is the correlation of business cycles, as the main driver of stock market integration.…”

“…Hafer et al (1997) find partial convergence of term structures in four large European countries from 1979 through 1995. Partial convergence of inflation rates and long-term interest rates for various subset of EU countries were reported by, e.g., Katsimbris and Miller (1993), Hafer and Kutan (1994), Bredin and Fountas (1998), Holmes (1998), and Phengpis et al (2004). Evidence of partial convergence in industrial production and GDP growth during the 1990s were found by Bernard and Durlauf (1995), Serletis and Krichel (1992), Mills and Holmes (1999), and Holmes (2002).…”

“…Further integration of product and factor markets is needed to reinforce convergence of real sectors. In the long-run the convergence process of real, as opposed to nominal, economic variables is the important contributor to stock market returns (Phengpis et al, 2004). Eventually, the stock markets will likely be impacted by increasing business cycle disintegration.…”

Spillover effects from London and Frankfurt to Central and Eastern European stock markets

“…More recently, Phengpis et al (2004) have investigated the impact of economic convergence on stock market returns in four stock markets in the EMU (France, Germany,…”

European Equity Market Integration and Optimal Investment Horizons – Evidence from Wavelet Analysis

“…negative shocks are more strongly transmitted via borders (Fratzscher, 2002) and leaves place for partial segmentation of certain stock markets (Bessler, Yang, 2003). Behind capital market integration stands real and nominal macroeconomic convergence, and therein reduction of currency risk and convergence of monetary policy with respect to interest rates and inflation (Fratzscher, 2002;Phengpis et al, 2004). Integration of major European equity markets and the rise in their world significance first of all results from formation of the common currency area (Fratzscher, 2002;Kim et al, 2005;Hardouvelis et al, 2006).…”