Assessing time-varying stock market integration in Economic and Monetary Union for normal and crisis periods

In this paper, we examine the stock market integration process amongst 17 Economic and Monetary Union (EMU) countries from January 2002 to June 2013 over a normal period as well as for the Global Financial Crisis (GFC) and Eurozone Debt Crisis (EDC) periods. We classify the economies in three groups (A, B and C) based on their GDP to examine whether the economic size influences financial integration. Seven indicators are used for the purpose, namely, beta convergence, sigma convergence, variance ratio, asymmetric DCC, dynamic cointegration, market synchronisation measure and common components approach. The results suggest that large-sized EMU economies (termed as Group A) exhibit strong stock market integration. Moderate integration is observed for middle-sized EMU economies with old membership (termed as Group B). Small-sized economies (termed as Group C) economies seemed to be least integrated within the EMU stock market system. The findings further suggest presence of contagion effects as one moves from normal to crisis periods, which are specifically stronger for more integrated economies of Group A. We recommend institutional, regulatory and other policy reforms for Group B and especially Group C to achieve higher level of integration.     

Information Transmission between Mature and Emerging Equity Markets During Normal and Crisis Periods: An Empirical Examination

In this paper, we examine the price discovery and volatility spillovers between eight mature market economies (MMEs) and eight emerging market economies (EMEs) from January 2003 to July 2014, covering three sub-periods—prior to the 2007–09 global financial crisis (GFC), during the crisis, and post-crisis. The results of price discovery indicate that MMEs lead EMEs in the pre-crisis and post-crisis periods. All MMEs are cointegrated with China in the pre-crisis period but not in the post-crisis period. Dynamic cointegration results reconfirm our findings from Johansen’s co-integration test. The asymmetric dynamic conditional correlation (ADCC-GARCH) coefficients suggest a regional pattern among MMEs and EMEs, except in the case of European MMEs with South Africa. Employing BEKK-GARCH model, we find that volatility spillovers of MMEs with China and of Italy with EMEs weakened in the post-crisis period as compared to the pre-crisis period implying that the GFC damaged the information transmission process, particularly for China and Italy. While China is a large economy with strong trade linkages with the rest of the world, Italy is one of the larger European economies which was in relatively greater distress during the EDC. The findings have implications for policy makers and investors.

     

How Income and Crowding Effects Influence the World Market for French Wines

Wine prices rose rapidly between 2001 and 2011 but have now stagnated. The growth phase could be explained by the increased demand from emerging markets, while the subsequent stagnation may result from the crowding effect caused by the entry of numerous new varieties onto the wine market. The generalised model of ideal variety proposed by Hummels and Lugovskyy combines these two elements, and focusing on French exporters, we find partial support for this explanation at the world level. A 1 per cent increase in GDP per capita (income effect) generated an increase in price of 1.13 per cent between 2001 and 2011. In contrast, a 1 per cent increase in market size (competition effect) reduced prices by 1.10 per cent over the same period. This paper goes further into the analysis of these effects by considering wine exports according to the mode of transport used and indirectly evaluates economies of scale when wine is exported by land, sea or air (via a gravity equation). Economies of scale are observed for transport by plane and ship but not for road. A 10 per cent increase in the value of wine exported by road (plane) leads to a rise (reduction) in transport costs of 0.5 per cent (19 per cent).     

Information Transmission Between NSE50 Spot and Derivative Platforms in India: An Empirical Study

In this study, we examine the information transmission process between spot, futures and options segments for the NIFTY 50 index. The data is used from 2003 to 2013. Empirical results show that the spot market leads the price discovery process followed by the futures market and then the options market. The spot market again leads in the volatility spillover process while options dominate the futures contracts. There is a univariate skewness spillover from spot as well as futures to the options platform. Further, long term bidirectional kurtosis spillover is observed between spot and futures with former playing a more dominant role.