Measuring time-varying financial market integration: an unobserved components approach

Time: Tuesday September 18th, 13.00-14.00 hours
Location: CPB-office, Van Stolkweg 14, The Hague

Presentation: Lorenzo Pozzi (EUR)

Discussant: Jürgen Antony (CPB)

Language: English

Registration:  Please register by sending an email to seminars@cpb.nl.

Abstract subject: We measure the time-varying degree of world stock market integration of five developed countries (Germany, France, the UK, the US, and Japan) over the period 1970:1-2011:10. Time-varying financial market integration of each country is measured through the conditional variances of the country-specific and common international risk premiums in equity excess returns. The country-specific and common risk premiums and their conditional variances are estimated from a latent factor decomposition through the use of state space methods that allow for GARCH errors. Our empirical results suggest that stock market integration has increased over the period 1970:1-2011:10 in all countries but Japan. And while there is a structural increase in stock market integration in four out of five countries, all countries also exhibit several shorter periods of disintegration (reversals), i.e. periods in which countryspecific shocks play a more dominant role. Hence, stock market integration is measured as a dynamic process that is fluctuating in the short run while gradually increasing in the long run.

Seminars
CPB organises seminars for researchers. During these seminars, always held on Tuesday from 1.00 pm. to 2.00 pm., academic papers are presented and discussed. Read here how to subscribe (or unsubscribe) to our alert service (CPB Calendar).

Policy seminars
CPB also organises Policy seminars for policy makers, researchers and other stakeholders. These Policy seminars focus on policy implications. Policy seminars are held on Thursday from 1.00 pm. to 2.00 pm. Read here how to subscribe (or unsubscribe) to our alert service (CPB Calendar).