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Is the European Capital Market Ready for the Single Currency?
Author(s) -
Bowe Michael,
Mylonidis Nikolaos
Publication year - 1999
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/1468-5957.00246
Subject(s) - economics , government bond , yield (engineering) , capital market , extant taxon , capital (architecture) , bond market , monetary economics , currency , financial economics , benchmark (surveying) , bond , interest rate , finance , history , materials science , archaeology , geodesy , evolutionary biology , biology , metallurgy , geography
This paper defines, and investigates the extent of, capital market integration in the European Ecu government bond market sector utilising Johansen’s (1992) multivariate analysis. Evidence suggests the yield system is driven by a unique common trend, although we reject the zero‐sum restriction on the cointegrating vector. The former finding is consistent with our definition of full Ecu capital market integration, the latter is not, although it is explainable by failure of the expectations hypothesis. Our results support market utilisation of the extant Ecu yield curve as the initial benchmark for pricing euro‐denominated debt securities following stage III EMU.