Economic Drivers for Dynamic Integration of European Stock Markets: A Nonlinear Approach

Using a nonlinear conditional quantile regression technique, this study examines the respective effects of the EMU launch, the recent GIIPS fiscal crisis and monetary performance convergence on dynamic integration of European stock markets over the full sample periods 1990-2013. Our study finds that both the EMU launch and the GIIPS crisis has led to a significant increase in integration of stock returns in Europe. Our regression results also suggest positive relationships between the stock market integration and monetary similarities between sample EU countries. Importantly we in this study evidence an existence of nonlinearities between integration of EU equity markets and its economic drivers which reflect investors’ different expectations for macroeconomic news for pricing future stock values.