Happy 20th birthday Euro: An integrated analysis of the stability status in the Eurozone’s equity markets

Abstract. We celebrate the 20 th anniversary of the introduction of the Euro by reviewing one of the key elements: the integration of the Eurozone financial markets. Introducing a multivariate volatility test based on the asymmetrical BEKK (ABEKK) multivariate GARCH model of volatility to analyse the stable market pre-condition hypothesis of the integrated Eurozone equity markets across the euro’s timeline. Extending our analysis to the impact of the rise of the populist political movement on the Eurozone financial markets during the last few years. The first and most important contribution is the introduction of a multivariate volatility test based on the ABEKK to analyse the stability of the integration in the Eurozone equity markets. However, another key contribution is the analysis of a period where the whole concept of European integration is coming into question by the rise of the populist political movement. This research could be of importance to the ECB in stabilising the Eurozone financial markets as well as market participants in portfolio optimization within the Eurozone. Our results point to a difference in financial market integration depending on the definition. The empirical evidence found that market participants tend to react differently according to the affinity of the market participants to the event/news. In essence, market participants are driven by the “time and space” effect. This would point to evidence that the Eurozone equity markets was never truly integrated in the econometrics sense as defined later on. However, our literature review did identify evidence that the Eurozone equity markets was integrated in accordance with the definition of Baele et al., ( 2004 ). Hence it really does depend on the definition used. Generally, our policy recommendations are for a committee to be setup to unify the communication and actions of the European Union during crises. A better way of communicating the work and concept of the European Union to the population. Finally, a slower paced policy of integration to overcome the sense of loss national identity which recently many are plying on. Keywords. Euro, European integration, Volatility test, Asymmetric BEKK, Multivariate GARCH, Volatility spillover, News contagion, Equity markets. JEL. C12, C58, E44, F36, G15.