Stock exchange mergers: a dynamic correlation analysis on Euronext

Abstract

This article investigates the role of Stock Exchange Mergers on stock market return comovements. Using a dynamic conditional correlation model proposed by Engle (J Bus Econ Stat 20:339-350, 2002), the Euronext Stock Exchange was analyzed, and findings point to an increase in correlation levels of stock return among Euronext unitholders. In short, Euronext stock exchange mergers increased interdependency among these markets, which means that the possibility of diversifying investment risk in these markets is reduced.

Assessing the diversification risk of a single equity market: evidence from the largest European stock indexes

“…The merger of stock markets tends to dampen transaction costs but at the same time makes financial problems more interdependent. The study by Espinosa-Méndez et al [2020] shows that the Euronext Stock Exchange has increased interdependency and reduced diversification opportunities. The case of the Latin Integrated Market represents a situation where, in 2009, the Santiago Stock Exchange, Lima Stock Exchange, and Columbia Stock Exchange established a joint trading entity named MILA [MILA, 2021].…”