The European Union, the Euro and Equity Market Integration
Coauthor(s): Campbell Harvey, Christian Lundblad, Stephan Siegel.
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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 signicantly 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.
Source: Working paper
Bekaert, Geert, Campbell Harvey, Christian Lundblad, and Stephan Siegel. "The European Union, the Euro and Equity Market Integration." Working paper, Columbia Business School & NBER, March 15, 2010.