Geert Bekaert

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 significantly lower for EU versus non-EU members. Bilateral valuation di fferentials 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
Exact Citation:
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.
Volume: 109
Number: 3
Pages: 583-603
Date: 2013