Price- and News-Based Measures of Financial Integration among New EU Member States and the Euro Area

Babecký, Jan; Frait, Jan; Komarek, Lubos; Komarkova, Zlatuse

doi:10.1057/9780230302211_8

Cited by 5 publications

(6 citation statements)

References 14 publications

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“…Birg and Lucey (2006) examine capital market integration in smaller European countries and its implications for an international portfolio investment allocation. Babecký et al (2008) provide evidence for stock market integration on both national and sectoral levels between the Czech Republic, Hungary, Poland and the Euro area.…”

Section: Theory and Hypothesesmentioning

confidence: 93%

Financial integration in selected South Asian countries

Perera

Wickramanayake

2012

S Asian Jnl of Global Bus Res

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PurposeThe purpose of this paper is to examine financial market integration in major South Asian financial markets: Bangladesh, India, Pakistan and Sri Lanka. Also to identify the required policy interactions and structural changes vital for broader economic integration.Design/methodology/approachThis research opted for an empirical study employing co‐integration and causality techniques using a sample of stock and bond market data for major South Asian countries.FindingsEmpirical results show that both stock and bond returns are co‐integrated, indicating common stochastic trends. Stock market integration appears to be much stronger compared to the less developed and data deficient bond markets.Research limitations/implicationsThe study relies on widely cited empirical methodology. However, adopting alternative specifications and also allowing for time variant factors while examining inter‐linkages between stock and bond markets seem to be appropriate for robustness of results.Practical implicationsIncreased integration would help in reducing arbitrage opportunities in these financial markets, having implications for market participants and promoting economic growth through financial deepening, in general. Since the degree of integration is dependent on policy and institutional infrastructure, ongoing efforts to develop financial sectors and reforms would need to be accelerated to further strengthen the degree of convergence between securities markets.Originality/valueThe paper fulfills an identified need to examine financial market integration in the SAARC region, using data for both stock and bond markets. This is the first study to use bond market data for SAARC countries and it also adds to the limited literature of bond market integration.

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Section: Theory and Hypothesesmentioning

confidence: 93%

Financial integration in selected South Asian countries

Perera

Wickramanayake

2012

S Asian Jnl of Global Bus Res

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“…Stock market data for Slovakia, obtained from Datastream or the official web site of the Bratislava Stock Exchange, include a significant number of zero observations that were impossible to be replaced. However, none of the previous studies that employed daily stock market data for Slovakia (Babetskii et al, 2007;Baltzer et al, 2008;Babecky et al, 2009;Allen et al, 2010) mentioned any adjustments so as to address this issue. Therefore, the empirical analysis was implemented with the available database for the sake of comparison, however results should be interpreted with caution.…”

Section: Discussionmentioning

confidence: 99%

“…The data used in this study consist of daily closing prices of the national stock indices of the new EU members[2] that have already adopted the euro; CYSE for Cyprus, OMX Tallinn Stock Exchange for Estonia, MSE for Malta, SAX for Slovakia and SBI TOP for Slovenia. Following the relevant literature (see amongst others Babetskii et al (2007) and Babecky et al (2009)), the Dow Jones Stoxx Europe 600 (DJES) is used as a proxy for the euro area. It is worth noting, that we have also repeated our computations using the Euro Stoxx 50 index as a benchmark.…”

Section: Datamentioning

confidence: 99%

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Stock market linkages among new EMU members and the euro area

Dunis¹,

Sermpinis

Karampelia

2013

Studies in Economics and Finance

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Purpose -The purpose of this paper is to focus on the empirical dimension of financial integration among the five newest members of the European Monetary Union (Cyprus, Estonia, Malta, Slovakia and Slovenia) and the euro area. The main objective is to study the level and the speed of integration between the stock markets of those European Union (EU) member states and the rest of the euro area, assessing in this way the role that the EU enlargement, the drive towards European Monetary Union and the actual adoption of the euro play in the process of European financial market integration. Design/methodology/approach -This study will exclusively test the integration of the stock markets of EU member states that joined in 2004, when the EU expanded, but are already members of Economic and Monetary Union (EMU). Since there is limited evidence on the effects of EU and EMU enlargements or their announcements, it will be a useful addition to the examination of this issue. Given the small size of those emerging stock markets and the fact that they are part of a stable and well-regulated system, the degree to which they are integrated has implications for investors' portfolio allocation decisions, as they may offer diversification benefits without extreme risks. The case of integration will be examined using various econometric methodologies, two of which (beta-and sigma-convergence) have been given less formal attention and their application is rare, so as to detect both long-and short-run interdependencies and achieve robust results. Findings -The findings indicate an increasing degree of integration for Malta and Slovenia, while Estonia appears segmented. Cyprus and Slovakia exhibited a degree of integration after their accession into EU but this trend changes after they adopted the euro. Overall, the integration process accelerated after the accession in the EU but EMU does not seem to have the same positive impact on it. Originality/value -Compared with previous studies, the authors' apply the concept of beta-and sigma-convergence, a methodology that will help us identify the speed of integration. Moreover, the period under study includes the recent crisis: this allows us to see if the worsened economic environment has had effect on the level and speed of integration of the countries under study. In the end, it is worth noting that previous studies focused on either advanced markets or neighbouring countries or states with a common history. This alone can create a level of interdependence between the countries under study and bias the results. In this paper, the markets under study have almost nothing in common except their small size and the fact that they are members of the EMU.

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“…In this study, we use news-based measures, which make it possible to identify existing market imperfections such as frictions and barriers. Babecky et al (2009) argue that news-based measures are designed to distinguish information effects from other frictions or barriers. In a financially integrated area, portfolios should be well diversified, and the degree of systematic risk should be identical across assets in different countries.…”

Section: Price Discovery Dynamics Using the Vector Error Correction Mmentioning

confidence: 99%