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Bruno Gérard
- 27 October 2006
- WORKING PAPER SERIES - No. 683Details
- Abstract
- This study assesses the degree of financial integration for a selected number of new EU member states between themselves and with the euro zone. Within the framework of a factor model for market returns, we measure integration as the amount of variance explained by the common factor relative to the local components. We show that this measure of integration coincides with return correlation. Correlations are proxied by comovements, estimated via a regression quantile-based methodology. We find that the largest new member states, the Czech Republic, Hungary and Poland, exhibit strong comovements both between themselves and with the euro area. As for smaller countries, only Estonia and to a less extent Cyprus show increased integration both with the euro zone and the block of large economies. In the bond markets, we document an increase in integration only for the Czech Republic versus Germany and Poland.
- JEL Code
- C32 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes
F30 : International Economics→International Finance→General
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
- 26 May 2006
- WORKING PAPER SERIES - No. 626Details
- Abstract
- We investigate the determinants of bilateral international equity and bond portfolio reallocation across a large cross section of countries over the 1997 to 2001 period. We first argue that financial integration is not a global phenomenon, as equity and bond home biases declined significantly only among European countries, Australia, New Zealand and Singapore. Then, we show that the European Economic and Monetary Union (EMU) eased the access to the equity market and, to a larger extent, the bond market; thereby, enhancing regional financial integration in the euro area. Beside the effect of the EMU, the strongest determinants of the changes in portfolio weights are expected diversification benefits and the initial degree of underweight.
- JEL Code
- C13 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Estimation: General
C21 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Cross-Sectional Models, Spatial Models, Treatment Effect Models, Quantile Regressions
F37 : International Economics→International Finance→International Finance Forecasting and Simulation: Models and Applications
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
- 21 July 2005
- WORKING PAPER SERIES - No. 501Details
- Abstract
- This paper develops a rigorous econometric framework to investigate the structure of codependence between random variables and to test whether it changes over time. Our approach is based on the computation - over both a test and a benchmark period - of the conditional probability that a random variable yt is lower than a given quantile, when the other random variable xt is also lower than its corresponding quantile, for any set of prespecified quantiles. Time-varying conditional quantiles are modeled via regression quantiles. The conditional probability is estimated through a simple OLS regression. We illustrate the methodology by investigating the impact of the crises of the 1990s on the major Latin American equity markets returns. Our results document significant increases in equity return co-movements during crises consistent with the presence of financial contagion.
- JEL Code
- C14 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Semiparametric and Nonparametric Methods: General
C22 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models &bull Diffusion Processes
G15 : Financial Economics→General Financial Markets→International Financial Markets