An analysis of financial markets integration within the European Union

Abstract

Given the context of world globalisation, financial integration is gaining ever increasing importance. This subject has long been at the centre of debate within the European Union. Inspired by the importance of this subject, the dissertation investigates European financial integration during the period 1998-2012. As an indication of European Union integration the study focuses on six member states (Luxembourg, Ireland, Netherlands, Slovenia, Malta and Slovakia), which are compared with the European benchmark (Germany). The analysis is performed using the law of one price as a backing theory and by applying price based measure of financial integration. Overall the study shows that financial integration changes over time and different member states have different levels of financial integration with the European benchmark. Countries with higher levels of GDP seem to have a superior degree of integration. Yet an increase in integration can be noted for new member states, particularly following the euro adoption. The study also reveals that the financial and sovereign debt crises have negatively impacted integration within the European Union. However there is also evidence of recovery during the second half of 2012. The dissertation is concluded by providing suggestions for future studies. Such studies can aid policy makers and investors in augmenting the decision making process.