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Tomas Dvorak
- 11 November 2005
- WORKING PAPER SERIES - No. 552Details
- Abstract
- The announcement of European Union enlargement coincided with a dramatic rise in stock prices in accession countries. This paper investigates the hypothesis that the rise in stock prices was a result of the repricing of systematic risk due to the integration of accession countries into the world market. We find that firm-level stock price changes are positively related to the difference between a firm's local and world market betas. This result is robust to controlling for changes in expected earnings, country effects and other controls, although the magnitude of the effect is not very large. The differences between local and world betas explain nearly 22% of the stock price increase.
- JEL Code
- F36 : International Economics→International Finance→Financial Aspects of Economic Integration
G15 : Financial Economics→General Financial Markets→International Financial Markets
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates - Network
- ECB-CFS Research Network on "Capital Markets and Financial Integration in Europe"