Financial and economic integration - a European or global phenomenon

Doutoramento em GestãoThis research examines European financial and economic integration to see whether this is part of or additional to a global phenomenon. It expands previous research by examining how financial, economic and monetary indicators of European Union countries separately and as a block correlate with those of the U.S. and Japan, and whether effects differ between large and small markets within the E.U.. The results generally give evidence that stock market integration reflects other measures of economic and monetary integration, namely interest rates, exchange rates and trade. The findin gs confirm a strong increase over time in the intra European correlations for financial and· economic variables against generally smaller changes in E.U. connections with Japan and the U.S. and between Japan and the U.S.. The results show that financial, economic and monetary European integration is a regional phenomenon more than a reflection of a global trend toward integration. Globally countries within European Union are shown to be closer financially, economically and monetarily with themselves than with U.S. or Japan. The study also measures the impact of economic and monetary European integration in terms of the effects on the theoretical optimal European portfolios for representative European Union resident investors. The research focuses on European and national risk and on the consistency, level and changes in optimal European weights under European integration using Markowitz mean/variance efficiency and the Sharpe ratio. The research shows that there is a trend towards a higher European influence on risk and a concentration on a smaller number of markets at any one time with increasing focus on E.U. markets offering the highest returns. The study also indicates an increase in the level of concentration of optimal weights in the theoretical optimal portfolio as European markets raising concerns about overshooting as investment funds move dramatically between markets. There are also some practical concerns about the liquidity of small national markets under integration raising problems of their viability in an integrated Europe