Deep financial integration and volatility

Arbeitspapier

We investigate the relationship between financial integration and output volatility at micro and macro levels. Using a very large firm-level dataset (AMADEUS) from 16 European countries, we construct a measure of deep financial integration at the regional level based on observations of foreign ownership at the firm-level. We find a significant positive effect of foreign ownership on the volatility of firms' outcomes in static as well as dynamic empirical frameworks. This effect survives aggregation and carries over to regional output, leading to a positive association between deep financial integration and aggregate fluctuations. To identify the causal effect of financial integration on volatility we exploit variation in the transposition dates of the European Union-wide legislative acts from the Financial Services Action Plan (FSAP). We find that high trust regions located in countries who harmonized their capital markets sooner have increased levels of financial integration and volatility.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 1006 [rev.]

Classification and Topics

• Classification: Wirtschaft ; Business Fluctuations; Cycles ; Economic Integration ; Financial Aspects of Economic Integration ; Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
• Subject: firm volatility ; foreign ownership ; regional integration ; social capital ; macro volatility ; Finanzmarkt ; Wirtschaftsintegration ; Unternehmensentwicklung ; Industrielle Produktion ; Volatilität ; EU-Staaten

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Kalemli-Özcan, Sebnem ; Sørensen, Bent E. ; Volosovych, Vadym
• Event: Veröffentlichung
• (who): TÜSİAD-Koç University Economic Research Forum
• (where): Istanbul
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/45406
• Last update: 10.03.2025, 11:42 AM CET