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This paper compares the dynamics of the financial integration process as described by different empirical approaches. To this end, a wide range of measures accounting for several dimensions of integration is employed. In addition, we evaluate the performance of each measure by relying on an established international finance result, i.e., increasing financial integration leads to declining international portfolio diversification benefits . Using monthly equity market data for three different country groups (i.e., developed markets, emerging markets, developed plus emerging markets) and a dynamic indicator of international portfolio diversification benefits, we find that ( i ) all measures give rise to a very similar long-run integration pattern; ( ii ) the standard correlation explains variations in diversification benefits as well or better than more sophisticated measures. These findings are robust to a battery of robustness checks.

In the paper we present results of our examination of the equity markets integration process inEuropefrom the wavelet perspective. The method applied is the discrete wavelet analysis in the form of the wavelet variance and wavelet correlation decomposition. In particular, we answer the questions about changes of the investment risk and the possibility of international portfolio diversification under different investment horizons. The study documents comovements in Central European equity markets, although these markets show some kind of segmentation. This enables investors to reduce the variability of their portfolio returns by the international portfolio diversification, especially for longer investment horizons. W artykule prezentuje się wyniki badania procesu integracji giełd europejskich z użyciem dwu metod analizy falkowej: dekompozycji wariancji i korelacji falkowych. W szczególności odpowiada się na pytania o zmiany ryzyka inwestycyjnego oraz możliwość międzynarodowej dywersyfikacji portfeli przy uwzględnieniu różnych horyzontów inwestycyjnych. Badanie pokazuje, że ma miejsce proces konwergencji giełd środkowoeuropejskich, ale rynki te jako całość wykazują pewną segmentację. Daje to możliwość międzynarodowej dywersyfikacji portfeli, przede wszystkim dla dłuższych horyzontów inwestycyjnych.

Mestrado em Finanças O presente trabalho pretende estudar a integração dos mercados de acções da União Europeia nos períodos antes e depois da intrudução do euro. Em particular, pretende-se investigar em que medida a entrada no euro produziu uma convergência nos mercados de acções da União Europeia diferentes da convergência dos restantes mercados. Neste estudo foram utilizados dados das cotações diárias de 26 Índices de acções da MSCI, referentes a um período de 12 anos (entre 1 de Janeiro de 1996 e 31 de Dezembro de 2007), dividido em dois de seis anos cada: o primeiro de 1996 a 2001, correspondente aos anos antes da introdução do euro, e o segundo de 2002 a 2007, correspondente aos anos depois da introdução do euro. Os dados foram divididos em dois grupos de mercados: 13 da União Eurpeia e 13 de outros países. Foi utilizada a metodologia da análise das correlações entre as taxas de rendibilidade diárias dos vários mercados de capitais, permitindo, desta forma, dar continuidade a uma série de estudos anteriores que utilizaram esta metodologia. Os resultados mostram que os valores das correlações entre os mercados de acções, em termos mundiais, desceram após 2001, com excepção dos mercados da UE, revelando, desta forma, um fenómeno regional, que é explicável pelo conjunto de políticas comuns entre os diversos países da EU, nomeadamente a influência de uma política monetária comum, de uma maior integração comercial e política. Estas conclusões contradizem as de outros estudos anteriores que referem um aumento das correlações (da integração) entre os mercados de acções, indicando a existência de um acentuado fenómeno de globalização. No entanto, muitos destes estudos não integram os últimos anos da nossa amostra, pelo que será possível dizer que o fenómeno de maior integração dos mercados se verificou, essencialmente, na década de noventa, tendo as correlações atingido valores elevados nessa época. The purpose of this work is to study the integration of European Union's stock markets before and after the euro introduction. In particular, it aims to investigate the extent to which joining the euro produced a convergence in European equity markets different from other markets. The study used data from the daily prices of 26 MSCI Equity Indices, for a 12 years period (from January 1996 to December 2007), divided into two periods of six years each one: the first from 1996 to 2001 corresponding to the years before the introduction of the euro, and the second from 2002 to 2007, corresponding to the years after the introduction of the euro. The data was divided into two groups of Equity Indices: 13 from de European Union and 13 from other countries. We used the methodology of correlation analysis between daily rates of return of capital markets, continuing a series of previous studies using this methodology. The results show that the values of the correlations between the equity markets around the world fell after the year 2001, with the exception of EU markets, revealing thus a regional phenomenon which is explained by a set of common policies among the EU countries, including the influence of a common monetary policy, greater trade integration and similar politic regimes. These findings contradict some previous studies that report an increase in correlations (integration) between equity markets, indicating the existence of a marked phenomenon of globalization. However, many of these studies did not include the last years of our sample, so you can say that the phenomenon of increased market integration has occurred, mainly in the nineties, and the correlations reached high values at the time.

Croatia is on its path to the EU. Developments on this path have influence on many aspects in the economy. In this paper we analyse integration of Croatian equity market with European and world equity markets and measure integration with the VAR impulse responses and variance decomposition. The premise is that well integrated markets should respond to shocks similarly. According to this test, major world markets (measured by DJIA, FTSE and DAX) indeed display certain degree of shock transmission. Opposite, Croatian and other less important markets in CEE economies that were tested do not show the same degree of integration. It seems that in terms of transfer of short term shocks between markets, Croatia and other CEE economies are still pretty much isolated from the world.

Stock exchange industry consolidation is at work since many years and has recently accelerated through competition for order flows, agreements and mergers. However, consolidation may not mean that all shocks are transmitted to every place. Therefore, following Forbes and Rigobon (2002) we distinguish convergence (as interdependence) from contagion. Long run interdependence is analyzed through overlapping rolling cointegration and shocks on correlations through multivariate GARCH models. The models are estimated on daily data from January 1 1994 and April 30 2006. We consider the DAX30, the CAC40, the FTSE100 and the NYSE indexes. We identify stock exchanges convergence between European places. However we mainly witness a leading role of the US market even after the euro area creation. Finally, dynamic correlations still exert local shocks while others are effectively transmitted.

Most econometric studies of equity market integration suggest that national markets are increasingly becoming part of a global equity market. As regards the extent of this integration, however, the results are often inconclusive. Further analysis calls for a closer scrutiny of the basic requirements for perfect integration. This paper presents an analysis of market segmentation in terms of existing regulatory and informational wedges, based on conditions in the Nordic welfare states. It is found that no barriers remain to cross-border equity market transactions, nor consequently to the perfect global integration of Nordic equity markets in a capital-flow perspective. However, certain residual cross-border tax wedges do challenge the view of perfect equity market integration. Further, continuing cross-border information gaps for small and medium-sized companies indicate the presence of a two-tier equity market integration.