The European Union, the Euro, and Equity Market Integration

Working Paper No. 16583 At a time of historic challenges to the viability of the Eurozone, we assess the contribution of the EU and the Euro to equity market integration in Europe. We use a simple and essentially model free measure of bilateral market segmentation: two countries are segmented if the...

Full description

Saved in:
Bibliographic Details
Published in:NBER Working Paper Series 2010-12, p.16583
Main Authors: Bekaert, Geert, Harvey, Campbell R, Lundblad, Christian T, Siegel, Stephan
Format: Article
Language:English
Subjects:
Capital budgeting
Discount rates
Economic theory
Equity
EU membership
Market segmentation
Regulation of financial institutions
Return on equity
Securities markets
Valuation
Volatility
Citations: Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Working Paper No. 16583 At a time of historic challenges to the viability of the Eurozone, we assess the contribution of the EU and the Euro to equity market integration in Europe. We use a simple and essentially model free measure of bilateral market segmentation: two countries are segmented if there is a wide divergence in the valuations of their industries. We first establish that segmentation is significantly lower for EU versus non- EU members. Bilateral valuation differentials remain lower for EU members even after we control for several possible channels of integration, such as bilateral trade, direct investment positions, financial regulation, and interest rate differences. Importantly, we find that EU membership reduces equity market segmentation between member countries whether or not members have also adopted the Euro. The Euro adoption as well as the anticipation of the Euro adoption has minimal effects on market integration.
ISSN:0898-2937
DOI:10.3386/w16583