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Measuring Dynamics of Financial Integration on the Euro Area Stock Markets, 2000–2016

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Advances in Panel Data Analysis in Applied Economic Research (ICOAE 2017)

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Abstract

The goal of this paper is to measure the dynamics of financial integration between the euro area stock markets over the long time period 2000–2016. The panel of data consists of monthly logarithmic returns of 19 major euro area stock market indexes. The evolution of the integration process is analyzed using a dynamic principal component approach. The index of integration, which measures the proportion of total variation in individual stock index logarithmic returns explained by the first principal component, serves as a measure of integration. The empirical results reveal that the dynamics of integration across the whole group of markets increased significantly after January 2008, during the global financial crisis (GFC). An inverted U-shaped pattern in the index of integration has been found in this period. The GFC and the subsequent euro area crises were formally detected based on the statistical procedure for an identification of down markets. Moreover, the estimation results of the index of integration turn out to be robust to the choice of a rolling window length.

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Acknowledgments

The contribution of the second named author was supported by the grant from the National Science Center, Poland, No. 2016/21/B/HS4/02004.

Author information

Authors and Affiliations

  1. University of Bialystok, Bialystok, Poland

    Elzbieta Majewska

  2. Bialystok University of Technology, Bialystok, Poland

    Joanna Olbrys

Authors
  1. Elzbieta Majewska
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  2. Joanna Olbrys
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Correspondence to Elzbieta Majewska .

Editor information

Editors and Affiliations

  1. Department of International Trade, Western Macedonia University of Applied Sciences, Kastoria, Greece

    Nicholas Tsounis

  2. Department of International Trade, Western Macedonia University of Applied Sciences, Kastoria, Greece

    Aspasia Vlachvei

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Majewska, E., Olbrys, J. (2018). Measuring Dynamics of Financial Integration on the Euro Area Stock Markets, 2000–2016. In: Tsounis, N., Vlachvei, A. (eds) Advances in Panel Data Analysis in Applied Economic Research. ICOAE 2017. Springer Proceedings in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-70055-7_10

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