International transmission of stock market movements - a Scandinavian focus -
Stock market integrationVAR (Vector autoregressive)ScandinaviaEUEMUManagement of enterprisesFöretagsledningManagementBusiness and Economics
Previous research has found an increased transmission of stock movements in Europe, partly caused by the establishment of institutions as the EU and the EMU. The purpose of this paper is to find the possible impact from the EU and the EMU concerning the evolution of international transmission of stock market movements, on four Scandinavian markets, Denmark, Finland, Norway and Sweden. The research is based on primary data, existing theories and earlier studies regarding international transmission of stock market movements. The examined method is a VAR (Vector autoregressive model) including a 10x1 vector of variables. Furthermore the tests considered are correlation, granger-causality, variance decomposition and impulse response. The investigation period is 1/1-1990 to 31/12-1994 and 1/1-2000 to 31/12-2004, hence before and after the Swedish and Finnish membership of the EU, and the Finnish membership of the EMU. It is difficult to interpret any larger changes in the interdependence between the Scandinavian stock markets. We only find evidence for an increased correlation and a more efficient response to foreign shocks, which may indicate a higher degree of interdependence among the stock markets during the two periods studied. The Scandinavian stock markets? interdependency with the larger European stock markets has increased significantly and particularly for Finland, which today is a highly integrated European stock market. This result is inconsistent with previous studies.