Financial integration and currency risk premium in CEECs: Evidence from the ICAPM

This paper aims to study the Central and Eastern European Countries' (CEECs) dynamics of financial integration in the euro area with the prospect of their integration into the European Monetary Union. Our empirical analysis is based, successively, on a MGARCH model with time-varying correlation...

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Bibliographic Details
Published in:Emerging markets review 2011-12, Vol.12 (4), p.460-484
Main Authors: Boubakri, Salem, Guillaumin, Cyriac
Format: Article
Language:English
Subjects:
CEECs
CEECs Euro area Currency risk premium Financial integration International Capital Asset Pricing Model (ICAPM)
Currency risk premium
Economic models
Economic theory
Economics and Finance
Emerging markets
Euro area
European Monetary Union
Financial integration
Humanities and Social Sciences
Integration
International Capital Asset Pricing Model (ICAPM)
Studies
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Summary:This paper aims to study the Central and Eastern European Countries' (CEECs) dynamics of financial integration in the euro area with the prospect of their integration into the European Monetary Union. Our empirical analysis is based, successively, on a MGARCH model with time-varying correlations, a state-space model and a Markov-switching model. The results show that financial integration (i) is not perfect but is increasing and (ii) is linked to currency stability. The growing financial integration in 2007–2009 seems to be rather the result of the shock propagated by the global crisis.
ISSN:1566-0141
1873-6173
DOI:10.1016/j.ememar.2011.08.001