Year: 2013
Type: dissertation
Abstract: On 22 September 2000, the French, Belgian and Dutch \nstock exchanges merged and \nformed the Euronext N.V., the first pan-European ex \nchange. The creation of Euronext \nwas a response to changes in the political and econ \nomic environment in Europe. The \nbenefits to market participants are easier access t \no a wider range of financial products, \nincrease in liquidity and lower transaction costs. \nIndeed, since its incorporation, \nEuronext has the second largest capitalization in E \nurope. \nThe aim of this thesis is to investigate the conseq \nuences of Euronext integration on \nthe French, Belgian and Dutch stock markets. It rai \nses two questions: 1. has the \nmerger improved the information efficiency of the m \narkets; and 2. has the level of \nintegration between the markets increased following \nthe incorporation of Euronext? \nThe study uses daily prices for the markets’ main i \nndices for the period 01/01/1990 to \n10/12/2010. The original sample is divided into thr \nee periods: pre-integration, \nintegration and post-integration period. Two types \nof returns are computed: log- \nreturns and excess returns. A dummy variable and a \ncontrol variable, the German \nmain index DAX, are included in the analysis to acc \nount for the effect of the \nintroduction of the Euro. \nUnit root and stationarity tests show that prices s \neries are integrated of the first order \nand that the returns series are stationary. Moreove \nr, the volatility of returns exhibits \nlong-memory patterns. The data generating process o \nf all the returns series is captured \nwith ARMA-GARCH models. The returns exhibit volatil \nity clusters in all sub- \nperiods. Hence, the information efficiency of the m \narket has not increased following \nEuronext integration. However, GARCH models do not \ninclude an asymmetric \ncomponent for the post-integration period, indicati \nng that the returns do not display \nleverage effects after the creation of Euronext. Fi \nnally, a Euro dummy variable was \nsignificant only for the Belgian returns. \nCointegration tests show that the three indices exp \nerience long-run equilibrium during \nthe integration and the post-integration periods. M \noreover, the conditional correlation \nbetween the markets increases and stabilises after \n2000. Overall, the evidence \nsupports wider financial integration between these \nmarkets. However, it is difficult to \n4 \ndetermine to what degree this change can be attribu \nted to the creation of Euronext as \nopposed to the introduction of the Euro or to a com \nbination of both. A Granger \ncausality test shows that EMU has Granger caused ma \nrket financial integration. On \nthe other hand, a system comprised of the three ind \nices and the control variable, \nDAX30, does not display long-run equilibrium for th \ne post-integration period, \nhighlighting the role of Euronext. These results ar \ne important for market participants.
Author: Bruno Eeckels
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W811786039