Title: Monitoring Financial integration by using price-based indicators
Publisher: Publications Office of the European Union
Publication Year: 2017
JRC N°: JRC109487
ISBN: 978-92-79-77062-3
ISSN: 1831-9424
Other Identifiers: EUR 28933 EN
OP KJ-NA-28933-EN-N
URI: http://publications.jrc.ec.europa.eu/repository/handle/JRC109487
DOI: 10.2760/915174
Type: EUR - Scientific and Technical Research Reports
Abstract: We measure EU integration using stock market prices. We review the relevant literature and provide two separate empirical applications to measure the financial integration in the European stock markets. The first application is based on a purely data driven methodology. Our aim is that of extracting from the data a (statistically) sound measure of integration across EU countries based on Principal Component Analysis. By using European countries’ stock market returns from January 2005 to December 2016 we observe a decrease in price integration during the European sovereign crisis and a recovery thereafter especially in the euro-area. We find that EA distress countries behaviour, with their high share of idiosyncratic risk during the sovereign crisis, shaped the whole EU28 measure of integration. The second approach is based on a theoretical model characterizing and an assessing the degree of integration of European equity markets vis à vis the world market. Using monthly returns from 1995 to 2016 we find that, especially in recent years, the main European stock markets become more integrated with the world market
JRC Directorate:Growth and Innovation

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