Journal
JOURNAL OF INTERNATIONAL MONEY AND FINANCE
Volume 30, Issue 1, Pages 96-110Publisher
ELSEVIER SCI LTD
DOI: 10.1016/j.jimonfin.2010.07.004
Keywords
Stock markets; Correlation; Comovement; Monetary union; Exchange rate regime
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This paper focuses on the relationship between stock market comovements and monetary integration. A panel specification is used to explain bilateral stock market return correlations between fifteen developed economies over the period 1975-2006. Time fixed effects are included to capture global shocks and we also examine the role of bilateral trade linkages and international financial integration. Monetary integration leads to stronger stock market synchronization, both through the elimination of exchange rate volatility and through the common monetary policy and the convergence of inflation expectations. Trade and financial integration also contribute to higher stock market return comovements. (C) 2010 Elsevier Ltd. All rights reserved.
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