The determinants of increasing equity market comovement: economic or financial integration? |
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Authors: | Lieven Baele Pilar Soriano |
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Institution: | 1. CentER, Netspar, and Tilburg University, PO Box 90153, 5000 LE, Tilburg, The Netherlands 2. Departament d’Economia Financera i Actuarial, Universitat de Valencia, Avda. Tarongers s/n, 46022, Valencia, Spain
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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. |
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