Assessing time-varying stock market integration in Economic and Monetary Union for normal and crisis periods. Issue 11 (2nd September 2017)

• Record Type: Journal Article
• Authors: Sehgal, Sanjay; Gupta, Priyanshi; Deisting, Florent
• Is Part Of: European journal of finance. Volume 23:Issue 11(2017)
• Page Start: 1025
• Page End: 1058
• Publication Date: 2017-09-02
• Subjects: EMU -- Global Financial Crisis -- Eurozone Debt Crisis -- stock market integration -- time-varying financial integration -- beta convergence -- sigma convergence -- variance ratio -- asymmetric DCC -- rolling cointegration -- Carhart four factor model -- Markov Regime Switching Model; C22 -- E44 -- F36 -- G14 -- G15; Finance -- Periodicals; Finance -- Europe -- Periodicals; International finance -- Periodicals; 332.094
• DOI: 10.1080/1351847X.2016.1158727
• Languages: English
• ISSNs: 1351-847X

Abstract

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.