European Union Enlargement and Equity Markets in Accession Countries

The announcement of the European Union enlargement coincided with a dramatic rise in stock prices in accession countries. This paper investigates the hypothesis that the rise in stock prices was a result of the repricing of systematic risk due to the integration of accession countries into the world market. We found that firm-level stock price changes are positively related to the difference between a firm''s local and world market betas. This result is robust to controlling for changes in expected earnings, country effects, and other controls, although the magnitude of the effect is not very large. The differences between local and world betas explain nearly 22 percent of the stock price increase.European Union;Stock markets;accession countries, stock prices, world market, market integration, stock price, nonaccession countries, stock market, market liberalization, equity markets, integrated market, domestic market, discount rate, stock market integration, risk-free interest rate, financial economics, stock market indices, stock market liberalization, open markets, foreign ownership, market segmentation, world market integration, international finance corporation, discounting, international financial markets, stock market index, present value, local stock markets, stock market openings, emerging stock market, cash flows, equity market, stock valuation, open market, economic integration, bond, international finance, stock returns, stock market liberalizations, financial systems, financial system, financial markets