The Euro and Convergence among Stock Markets of Germany, France and Italy

Abstract

This paper re-examines the role of the euro in enhancing the convergence among stock markets of Germany, France and Italy. The VAR-framework is implemented with a dummy variable. A pre- and post-euro analysis is also performed with an exclusion of the dummy variable. Monthly data on stock market returns from February 1994 through December 2007 are employed. The empirical results reveal evidence of significant convergence among the above markets during the post-euro era relative to the pre-euro era with net positive short-run causal effects.