Financial Market Integration: the Case of France in the Light of Empirical Evidence

Abstract

This paper examines the integration of French financial markets from an internal and an external point of view. By integration we mean a situation where two conditions hold: (i) valuation efficiency, a market is said to be efficient if the value of an asset equals the present value of expected future flows of income (Tobin, 1984); (ii) risk pricing equivalence, there exist no obstacles to the trade in financial assets and, therefore, the price required for bearing a given type of risk is the same for all investors and for all segments of a given capital market. In a situation where international integration of financial capital markets is perfect, consumption risks are mutualized. Individual consumption is then linked to global consumption; each individual has the possibility of getting rid of risks which are specific to him, to endure only a part of the global risk — the so-called ‘optimal sharing rule’.