Globalization and Market Integration
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.
KeywordsStock Market Financial Market Risk Premium Financial Asset Market Integration
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