Abstract
This chapter introduces the concept of stock market integration. Overall, markets are integrated if investments with similar characteristics provide similar returns. It also presents the expected benefits and costs of market integration. In theory, market integration should increase financial and economic efficiency, and lead to a higher economic growth. However, market integration may increase asset return volatility, and cause financial instability and contagion effects. We then discuss the different methods used to assess the market integration degree. Finally, we empirically examine the issue of market integration in Latin American emerging stock markets.
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Notes
- 1.
See Chap. 2 for further discussions about the evolution of foreign private capital flows to emerging market economies.
- 2.
See Chap. 3 for more discussions about the determination of risk factors in international asset pricing models.
- 3.
See Bai and Perron (2003) for detailed discussions.
- 4.
Official liberalization dates for Brazil, Colombia and Mexico are respectively May 1991, February 1991 and May 1989.
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Arouri, M.E.H., Jawadi, F., Nguyen, D.K. (2010). Globalization and Market Integration. In: The Dynamics of Emerging Stock Markets. Contributions to Management Science. Physica-Verlag HD. https://doi.org/10.1007/978-3-7908-2389-9_7
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DOI: https://doi.org/10.1007/978-3-7908-2389-9_7
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