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This paper examines the dynamic relationship between daily stock and government bond returns of selected countries over the past decade to infer the state and progress of inter-financial market integration. We proceed to empirically investigate the influence of the European Monetary Union (EMU) on time variations in inter-stock-bond market integration/segmentation dynamics using a two-step procedure: First, we document the downward trends in time-varying conditional correlations between stock and bond market returns in European countries, Japan and the US. Second, we investigate the causality and determinants of this interdependent relationship, in particular, whether the various macroeconomic convergence criteria associated with the EMU have played a significant role. We find that real economic integration and the reduction in currency risk have generally had the desired effect on financial integration but monetary policy integration may have created uncertain investor sentiments on the economic future of the EMU, thereby stimulating a flight to quality phenomenon. (c) 2005 Elsevier B.V. All rights reserved.

In this paper, we examine the integration of European government bond markets using daily returns over the 1998–2003 period with a set of complementary techniques to assess the time varying level of financial integration. We find evidence of strong contemporaneous and dynamic linkages between Euro zone bond markets with that of Germany. However, there is much weaker evidence outside of the Euro zone for the three accession markets of Czech Republic, Hungary and Poland, and the UK. In general, the degree of integration for these markets is weak and stable, with little evidence of further deepening despite the increased political integration associated with further enlargement of the European Union (EU).

We investigate the impact of scheduled government announcements relating to six different macroeconomic variables on the risk and return of three major US financial markets. Our results suggest that these markets do not respond in any meaningful way, to the act of releasing information by the government. Rather, it is the `news` content of these announcements which cause the market to react. For the three markets tested, unexpected balance of trade news was found to have the greatest impact on the mean return in the foreign exchange market. In the bond market, news related to the internal economy was found to be important. For the US stock market, consumer and producer price information was found to be important. Finally, financial market volatility was found to have increased in response to some classes of announcement and fallen for others. In part, this result can be explained by differential `policy feedback` effects.