Comovements in the European financial markets – do they change over time? a VECM Approach

This study examines the degree of integration of the Greek stock market with the Portuguese and French stock markets during the period 1994-2004, using monthly data. We use the French stock market as a proxy of the traditional stock markets and the Portuguese stock market as a proxy for the non-traditional ones. The data are divided into three sub-periods, from 1994:04 to 1999:12, from 2000:01 to 2002:12 and from 2003:01 to 2004:12. Using a VECM framework we find evidence of long run relationship between the Greek stock market and the Portuguese and French stock markets. The long run relationship is varying over time. Until 1999 the Greek stock market is showing evidence of integration with both markets. In the second period strong integration exists only with Portugal and weak with France. In the third period strong integration exists only with France while integration with Portugal is weak. Finally, we find that Portugal and France are acting as one month leading indicators of the Greek stock market.