Title: The interdependence of European equity markets

Authors: Maria H. Anagnostopoulou, George P. Diacogiannis

Addresses: 41 Evias, 173 41 Ag. Dimitrios, Athens, Greece. ' Department of Banking and Financial Management, University of Piraeus, 80 Karaoli and Dimitriou Str, 185 34 Piraeus, Greece

Abstract: The aim of this paper is to investigate the long-term relationships between the major equity markets of nine EU member states and the dominant markets worldwide, such as the UK, USA, Japan and Australia, in the last ten years as well as in three subperiods, in order to explore an increase in the level of interdependence. Furthermore, an attempt is made to examine any forthcoming changes in the results when the price series are expressed in the same currency, the drachma. Using the recently advanced method of cointegration, and mainly Johansen|s method, evidence of a long-term relationship between the markets of the EU (with the exception of the Italian market) and an increase in the level of interdependence is found. The relations are much more intense in the second period (1995–1998), while there seems to be no long-term relationship between the EU markets and those of the USA and Japan.

Keywords: equity markets; correlation; cointegration; unit root; Europe; market interdependence; market relationships; financial markets.

DOI: 10.1504/IJFSM.2006.009631

International Journal of Financial Services Management, 2006 Vol.1 No.2/3, pp.267 - 288

Available online: 03 May 2006 *

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