The Consequences of Euronext integration on the French, Belgian and Dutch stock markets.

Doctoral thesis English OPEN
Eeckels, Bruno

On 22 September 2000, the French, Belgian and Dutch\ud stock exchanges merged and\ud formed the Euronext N.V., the first pan-European ex\ud change. The creation of Euronext\ud was a response to changes in the political and econ\ud omic environment in Europe. The\ud benefits to market participants are easier access t\ud o a wider range of financial products,\ud increase in liquidity and lower transaction costs.\ud Indeed, since its incorporation,\ud Euronext has the second largest capitalization in E\ud urope.\ud The aim of this thesis is to investigate the conseq\ud uences of Euronext integration on\ud the French, Belgian and Dutch stock markets. It rai\ud ses two questions: 1. has the\ud merger improved the information efficiency of the m\ud arkets; and 2. has the level of\ud integration between the markets increased following\ud the incorporation of Euronext?\ud The study uses daily prices for the markets’ main i\ud ndices for the period 01/01/1990 to\ud 10/12/2010. The original sample is divided into thr\ud ee periods: pre-integration,\ud integration and post-integration period. Two types\ud of returns are computed: log-\ud returns and excess returns. A dummy variable and a\ud control variable, the German\ud main index DAX, are included in the analysis to acc\ud ount for the effect of the\ud introduction of the Euro.\ud Unit root and stationarity tests show that prices s\ud eries are integrated of the first order\ud and that the returns series are stationary. Moreove\ud r, the volatility of returns exhibits\ud long-memory patterns. The data generating process o\ud f all the returns series is captured\ud with ARMA-GARCH models. The returns exhibit volatil\ud ity clusters in all sub-\ud periods. Hence, the information efficiency of the m\ud arket has not increased following\ud Euronext integration. However, GARCH models do not\ud include an asymmetric\ud component for the post-integration period, indicati\ud ng that the returns do not display\ud leverage effects after the creation of Euronext. Fi\ud nally, a Euro dummy variable was\ud significant only for the Belgian returns.\ud Cointegration tests show that the three indices exp\ud erience long-run equilibrium during\ud the integration and the post-integration periods. M\ud oreover, the conditional correlation\ud between the markets increases and stabilises after\ud 2000. Overall, the evidence\ud supports wider financial integration between these\ud markets. However, it is difficult to\ud 4\ud determine to what degree this change can be attribu\ud ted to the creation of Euronext as\ud opposed to the introduction of the Euro or to a com\ud bination of both. A Granger\ud causality test shows that EMU has Granger caused ma\ud rket financial integration. On\ud the other hand, a system comprised of the three ind\ud ices and the control variable,\ud DAX30, does not display long-run equilibrium for th\ud e post-integration period,\ud highlighting the role of Euronext. These results ar\ud e important for market participants.
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