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The determinants of increasing equity market comovement: economic or financial integration?

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Baele, Lieven; Soriano, Pilar

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Abstract This paper investigates to what extent the substantial increase in exposures of local European equity market returns to global shocks is mainly due to a convergence in cash flows ("economic integration"), to a convergence in discount rates ("financial integration"), or to both. We find that this increased exposure is nearly entirely due to increasing discount-rate betas. This finding is robust to alternative ways of calculating discount-rate and cash-flow shocks.
Classification Political Economy
Free Keywords Economic integration; Financial integration; Cash-flow news; Discount-rate news; G11; G12; G15; C32; F37
Document language English
Publication Year 2010
Page/Pages p. 573-589
Journal Review of World Economics, 146 (2010) 3
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)