Financial integration estimation with realized measures
The objective of this study is to provide a new evidence on time-varying equity market
integration, employing alternative econometric specifications of the conditional covariance
process. Differently from the current literature on the topic, we specify alternative econometric
models for the conditional covariance of stock indexes which include as a measure of
past variability the monthly realized covariances. We analyze the degree of integration with
the rest of the world of European equity markets and its variation through time. We cast our
analysis in the framework provided with by the International Asset Pricing Model (IAPM).
This model accommodates the evolving market structure from segmentation to integration
as well as intermediate cases, depending on the existence of barriers to investments and
the availability of substitute assets. Our analysis provides evidence that in recent years
most of European Markets become more integrated with the world market. The local risk
factor does not seem to be a determinant factor in the European markets, in the sample
period considered. Its contribution to the total time-varying risk premium is only marginal.
OSSOLA Elisa;
ROSSI Eduardo;
2017-10-04
Publications Office of the European Union
JRC106955
978-92-79-69556-8,
1831-9424,
EUR 28646 EN,
OP KJ-NA-28646-EN-N,
https://publications.jrc.ec.europa.eu/repository/handle/JRC106955,
10.2760/64493,
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