Numerous recent studies, e.g. EU Commission (2004a), , Adam et al. (2002), and the research pooled in ECB-CFS (2005), Gaspar, Hartmann, and Sleijpen (2003), have documented progress in EU financial integration from a micro-level view. This paper contributes to this research by identifying groups of financially integrated countries from a holistic, macro-level view. It calculates cross-sectional dispersions, and innovates by applying an inter-temporal cluster analysis to eight euro area countries for the period 1995-2002. The indicators employed represent the money, government bond and credit markets. Our results show that euro countries were divided into two stable groups of financially more closely integrated countries in the pre-EMU period. Back then, geographic proximity and country size might have played a role. This situation has changed remarkably with the euro's introduction. EMU has led to a shake-up both in the number and composition of groups. The evidence puts a question mark behin d using Germany as a benchmark in the post-EMU period. The ¯ndings suggest as well that ¯nancial integration takes place in waves. Stable periods and periods of intense transition alternate. Based on the notion of 'maximum similarity', the results suggest that there exist 'maximum similarity barriers'. It takes extraordinary events, such as EMU, to push the degree of ¯nancial integration beyond these barriers. The research encourages policymakers to move forward courageously in the post-FSAP era, and provides comfort that the substantial di®erences between the current and potentially new euro states can be overcome. The analysis could be extended to the new EU member countries, to the global level, and to additional indicators.
Philadelphia, where earlier versions of this paper have been presented. We thank Steffen Kern and Bernhard Gräf for providing us with data. The dataset and programming code are available upon request. This paper is also published as eFinance Lab Working Paper 2005-128.
Risk management has become one of the burning issues of the finance industry, and research in this area is becoming increasingly complex and interdisciplinary. Basel II and the 9/11 WTC attack are two of the drivers that have increased senior management's and researchers' attention to this subject area. The goal of the second edition of Risk Management -Challenge and Opportunity is to "provide an up-todate and comprehensive survey of the major areas of risk management" (Preface, p. vii). This is a challenging task given how rapidly the literature on risk management and the corresponding research frontiers are expanding. Overall, the editors have met the challenge. In addition, compared to the already successful first edition, the second edition can be considered as a near-quantum leap with respect to its content both from a quantitative and qualitative perspective.
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