Estimating Time-Varying Capital Market Integration In The EMU
Main Article Content
Keywords
Market integration, capital market, International Asset Pricing Model, currency risk, European Monetary Union
Abstract
This paper analyzes the effect of the European monetary unification and economic liberalization in a sample of three EMU (France, Germany, Netherlands) and two non-EMU (U.K. and Switzerland) countries, as well as the European market index and a currency index, using data from March 1984 to November 2002. We utilize a multivariate GARCH framework and estimate jointly all parameters in the model. The study reveals that financial markets in Europe followed a gradual integration process. We also find that the Euro countries generally display higher degrees of market integration compared to the non-Euro countries in our sample.