Financial market dynamics in an enlarged European Union

D. Kenourgios, A. Samitas, Nikos Paltalidis

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    Abstract

    This paper provides evidence of integration in European equity and bond markets over the period January 2, 1997 to October 1, 2006. Our focus is to examine time-varying correlation dynamics in Euro-area, Central European (CE) and Balkan financial markets, modifying the asymmetric generalized dynamic conditional correlation (AG-DCC) model developed by Cappiello, Engle and Sheppard (Journal of Financial Econometrics, 2006). Using structural breaks, we identify the optimal time decay where financial markets share highest comovement. The results show an increase in the level of dependence during the period of the internet bubble collapse (2000), the Balkan countries start formally discussions to join European Union (2000), the introduction of Euro banknotes and coins (2002) and the entry of CE countries in EU (2004). The CE European and Balkan countries become gradually more integrated with the EMU countries, which is consistent with the interpretation that these countries may be expected to join the Euro in the future.
    Original languageEnglish
    Pages (from-to)197-221
    Number of pages25
    JournalJournal of Economic Integration
    Volume24
    Issue number2
    DOIs
    Publication statusPublished - Jun 2009

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