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Market Impact on financial market integration: Cross-quantilogram analysis of the global impact of the euro
Linköping University, Department of Management and Engineering. Linköping University, Faculty of Arts and Sciences.
Trofikverket, Sweden.
Trinity Coll Dublin, Ireland.
Linköping University, Department of Management and Engineering, Economics. Linköping University, Faculty of Arts and Sciences.
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2020 (English)In: Journal of Empirical Finance, ISSN 0927-5398, E-ISSN 1879-1727, Vol. 56, p. 42-73Article in journal (Refereed) Published
Abstract [en]

We contribute to the literature by providing a more comprehensive understanding of the impact the euro has had on financial market integration with economies of different characteristics outside and within the European market via inclusion of market conditions influence on the level of financial integration. Our paper employs the recently developed cross-quantilogram (Han et al., 2016) approach to examine quantile dependence between the conditional stock return distributions of Germany and the UK with that of three common currency groups within EMU (Finland, France, and Italy), two global leading markets (the US and Japan), and two of the most promising emerging markets (China and India). We find three key results. First, both the EU membership and the common currency union affect the degree of financial market integration. Nevertheless, disentangling the effects of EU membership from the common currency shows that the common currency group has an additional impact on financial integration, as the degree of dependence is stronger in the common currency group than in the sovereign currency group and other groups. Second, there is a heterogeneous dependence structure, which is strongly observed for the UK and German stock returns with that of developed (the US and Japan) and emerging markets (India and China). Third, cross-quantile correlations change over time, especially in low and high quantiles, indicating that they are prone to jumps and discontinuities in the dependence structure. As far as we are aware, this is the first study in this field employing a cross-quantilogram method to examine the impact of different market conditions on the correlations, making our study a pioneer in the field of stock market integration.

Place, publisher, year, edition, pages
ELSEVIER , 2020. Vol. 56, p. 42-73
Keywords [en]
Financial market integration; Cross-quantilogram; Euro; EMU
National Category
Economics
Identifiers
URN: urn:nbn:se:liu:diva-164652DOI: 10.1016/j.jempfin.2019.10.005ISI: 000518866200003OAI: oai:DiVA.org:liu-164652DiVA, id: diva2:1417579
Note

Funding Agencies|Jan Wallander and Tom Hedelius Foundations, Sweden [W2016:0364:1]; Spains Ministerio de Educacion, Cultura y Deporte [ECO2017-83255-C3-2-P]

Available from: 2020-03-29 Created: 2020-03-29 Last updated: 2020-03-29

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Uddin, Gazi Salah
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Citation style
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