European stock market integration: Fact or fiction?

The objective of this study is to determine the dynamics and contemporaneous interactions of Euro zone stock markets at the country and economic sector level. Overall test results have revealed the time-varying nature of the financial market integration process. Promoted by the anticipation and subsequently the formation of the currency union Euro zone stock markets became more integrated between 1998 and 2003. Monetary policy convergence, however, may have facilitated the divergence of economic variables. Evidence is found that return behavior is changing and stock markets within the Euro zone are starting to drift apart.