European Stock Exchanges Research Articles

Contracts and competition in the regulation of European stock exchanges

This paper explores the arguments for regulatory competition among stock markets in Europe. It suggests that some of the pressure for uniform regulation stems from a specific view about the nature of the implicit contracts governing the relationships between regulators, listing firms, investors, traders and society. By making these contracts more explicit it shows that there may be more extensive arguments for regulatory competition. In deriving implications it draws on an extensive study of the nature of competition and efficiency of securities markets over the period 1989–1999.

Stock Market Volatility Changes in Central Europe Caused by
 Asian and Russian Financial Crises

We consider four Central European stock market indexes over the period April 30, 1996 - August 31, 2001. We have found that the influence of the Asian crisis over the Central European markets is more severe than this of the Russian crisis. During the crises the Central European markets exhibit an increase in correlation and a decrease afterwards. We have found that the correlation never reaches pre-crisis level. We have found increasing persistence for Central European markets not only during the crisis but also during the postcrisis period. After the crisis, the market reaction is much weaker to the current market news than to the past information. Investigating the relationships between stock volatility and expected returns, we do not prove positive relation. During the crisis periods the relationship is positive and thus compensating risk-averse investors.

Stock market crises and portfolio diversification in Central and Eastern Europe

PurposeTo investigate the Central and Eastern European (CEE) equity market co‐movements before, during and after major emerging market crises. To examine the impact of the crisis on the gains of international portfolio diversification in CEE.Design/methodology/approachThe study is based on the concept of co‐integration. The daily US dollar returns are analyzed for the period August 28, 1996 to August 2, 2001. The whole period is split into three sample periods. The first one is the pre‐crisis period from August 28, 1996 to May 30, 1997. The crisis period is from June 2, 1997 to January 31, 1999. The third period is the post‐crisis from February 1, 1999 to August 31, 2001.FindingsIndicates no long‐run relationship between the US and the four Central European stock markets. Demonstrates a feedback effect and causality in one direction during and after the crisis period. Confirms a decrease of portfolio benefits in the crisis period and an increase of portfolio benefits in the post‐crisis period.Research limitations/implicationsIt is based on econometrics tests that quantify market integration and measure opportunities for international portfolio diversification. Employment of asset pricing models is viewed as a future research.Practical implicationsA very useful source of information for investors in Central and Eastern Europe.Originality/valueOne of the first papers investigated the benefits from portfolio investments in Central and Eastern Europe stock markets during financial crises.

Stock Market Crises and Portfolio Diversification in Central and Eastern Europe

We investigate the Central and Eastern European equity market co-movements before, during and after major emerging market crises. Our study is based on the concept of co-integration. We examine the impact caused by the crisis on the gains of international portfolio diversification in Central and Eastern Europe. The results of the co-integration tests indicate that there is no long-run relationship between the US and the four Central European stock markets. We find a feedback effect and causality in one direction during and after the crisis period. Portfolio benefits decrease in the crisis period but they increase in the post-crisis period.

Total Factor Productivity Growth in European Stock Exchanges: A Non-Parametric Frontier Approach

This paper examines progressive changes in productivity of the European stock exchange industry using non-parametric frontier techniques. Within the framework of Malmquist indices, total factor productivity growth is decomposed into technological progress and technical efficiency change for a balanced panel of all major European stock exchanges over the period 1993-1999. The principal findings indicate an overall rise in productivity over the sample period, which is driven more by technological innovation than by efficiency improvements. According to organisational setup, technological innovation is more pronounced for exchanges with the following characteristics: automation, equity and derivatives trading, for-profit governance structure, large or medium-size capitalised markets. Technological progress can be interpreted as a sign of the dynamic nature of the whole exchange industry, in which stock exchanges take advantage of intense diffusion of new cost-effective technologies and information systems to leverage themselves onto a higher production frontier.

Notes from the Editors, September 2002

» Notes from the EditorsThe growth and eventual bursting of financial bubbles is an inherent feature of capitalist accumulation, as can be seen in the long history of such crises from the South Sea Bubble of the early eighteenth century to the financial blowouts of the present day. In the first half of the summer a dramatic bubble-bursting decline in the U.S. and European stock exchanges wiped out the stock market gains of the previous five years—a period characterized by manic speculationThis article can also be found at the Monthly Review website, where most recent articles are published in full.Click here to purchase a PDF version of this article at the Monthly Review website.

Europe's top quoted companies: a comparative directory from seventeen European stock exchanges

Europe's top quoted companies: a comparative directory from seventeen European stock exchanges

International portfolio diversification in the central european region

The aim of this paper is to investigate international portfolio diversification opportunities for German and the U.S. investors in the Central European region. We employ Johansen multivariate cointegration test to analyze long run relationships among the Czech, Slovak, Polish, Hungarian, German and the U.S. stock markets. In addition, we attempt to account for possible impact of the Czech capital market failure on the diversification opportunities in the region. As the cointegration tests bring evidence on long run relationships among the Central European and developed stock markets, expected diversification benefits indicated by the low values of correlations of returns may be overestimated particularly over the longer investment horizons. Since the strength of relationships decreases from past to present, the loss of attractivity of the Czech capital market appears to weaken the long run interdependence among the countries which may paradoxically increase the diversification potential of the Central European region.

Equity Trading Systems in Europe: A Survey of Recent Changes

This paper provides a survey of recent changes in the market microstructure of the 5 largest European Stock Exchanges. We first provide a brief statistical overview of European equity markets. Then we discuss how the introduction of the Investment Services Directive and the development of institutional trading have prompted European Stock Exchanges to modify their trading systems since 1994. We show that these exchanges have converged to a similar market organization. In this organization, trading takes place in an order-driven market but trading rules can vary according to the type of securities. We also describe the remaining differences between the trading systems, in particular with respect to the consolidation of the order flow and transparency.

Cross Border Mergers of European Listed Companies : The Choice of a Reference Marketplace as a Relevant Criterion

The recently observed multiplication of cross-border merger transactions among companies listed on European stock exchanges invites one to wonder about the future of the listing of the stock of the absorbing or newly-created company. In this regard, when entering into a strategic analysis regarding the structure and modalities of a contemplated cross-border merger transaction between listed companies, the choice of the market place to be retained as the future reference market for the stock of the absorbing or newly created entity should not be considered meaningless. Such a choice should be an integral part of the legal and practical elements to be taken into account in order to determine the optimal structure to retain. It appears that the choice of a future reference marketplace itself depends on a number of parameters, among which are the typology of the current or sought after shareholding structure or the general environment of the financial place to be retained. When conducting such an analysis, it appears the Paris market place seems perfectly suited to become the reference market place for a number of recently merged companies. JEL Classification : K22

Rapprochements transfrontaliers de sociétés cotées en Europe : le critère de choix du marché de référence

Cross border mergers of european listed companies : the choice of a reference marketplace as a relevant criterion The recently observed multiplication of cross-border merger transactions among companies listed on European stock exchanges invites one to wonder about the future of the listing of the stock of the absorbing or newly-created company. In this regard, when entering into a strategic analysis regarding the structure and modalities of a contemplated cross-border merger transaction between listed companies, the choice of the market place to be retained as the future reference market for the stock of the absorbing or newly created entity should not be considered meaningless. Such a choice should be an integral part of the legal and practical elements to be taken into account in order to determine the optimal structure to retain. It appears that the choice of a future reference marketplace itself depends on a number of parameters, among which are the typology of the current or sought after shareholding structure or the general environment of the financial place to be retained. When conducting such an analysis, it appears the Paris market place seems perfectly suited to become the reference market place for a number of recently merged companies. JEL Classification : K22

THESEUS terminal-access to broadband networks for European stock exchanges

The objective of the THESEUS project is to develop a terminal that enables stock brokers located in Europe to communicate not only with their national stock exchange, but also with all the other European stock exchanges. Such a terminal is necessary to put into practice the EC directives concerning the opening of the European capital market. This paper presents an overview of the THESEUS terminal design strategy. It focuses on the communication protocol stack design and the implementation of broadband network access. The first European demonstration, using national host access facilities, was conducted successfully in January 1998. An overview of this demonstration is presented.

The Changing Microstructure of European Equity Markets

In the last decade, the increased competition between European stock exchanges has reduced the cost of trading and increased the variety of trading mechanisms. The London Stock Exchange, which initiated the competition in 1986 by setting up the SEAQ-I market, attracted considerable trading volume in Continental equities in the late 1980s. Later, however, Continental exchanges recovered most of the trading volume from London upon restructuring their auction systems so as to offer very low trading costs, greater transparency and continuous trading via an automated order book. At the same time, the spreads quoted by SEAQ-I dealers increased considerably. Lately, potential competition by continuous auction systems threatened even the market for British equities, and prompted the London Stock Exchange to replace its former SEAQ system with an automated order book. As in Continental Bourses, this automated auction system is expected to run in parallel with a dealership market for large trades. So trading systems appear to be converging towards a dualistic structure all over Europe. The paper documents these developments, and considers how the competition between European exchanges is likely to evolve and which opportunities and dangers the future may hold for them.

Central European banks and stock exchanges:: Capacity-building and institutional development

This paper analyses capacity building and institutional development in the banking and capital market sectors of formerly planned economies in Central and Eastern Europe. While the existing literature mostly addresses the specific situation of banks and capital markets in a particular country or for a few countries of the region only, this paper identifies common institutional and structural problems of all 10 Central European applicant countries for EU membership. Given the strong tendencies towards imprudent banking, the small size of the financial markets, asymmetric information, inadequate capitalization and insufficient supervision, privatization of the large former state owned banks may require strong equity involvement of foreign banks and international institutions like the European Bank for Reconstruction and Development (EBRD), which reduce the risk for foreign investors by providing guarantees and securing more reliable banking policies of the respective governments.

STATISTICAL PROPERTIES OF DAILY RETURNS: EVIDENCE FROM EUROPEAN STOCK MARKETS

This paper attempts to model the distributional properties of daily stock returns on several European Stock Exchanges. The empirical findings reveal the presence of non‐linear dependencies that cannot be captured by the random walk model. A model of return‐generating process that fit the data empirically is the Generalized Autoregressive Conditional Heteroskedastic GARCH (1,1) process with a conditional student‐t distribution.

On the riskiness of the world's stock markets

The main aim of this paper is to study the riskiness of the world's stock markets. This is carried out by applying the concepts of the two main asset pricing models: the Capital Asset Pricing Model (CAPM) and the Arbitrage Pricing Model (APM). Certain obvious risk categories among world stock markets exist. Three major potential reasons for the existence of these different risk categories are reported. Firstly, economic trade and currency areas seem to affect the riskiness of different stock markets, with North American, European and Oceanic stock exchanges quite clearly creating their own separate factors. Secondly, the level of institutional development of a given market also appears to be a factor determining its riskiness. Thin stock markets, such as those of Finland and Mexico seem to exhibit a different price behaviour of their own. Thirdly, the combined effect of different time zones and efficiency is discussed, especially in the case of the UK stock markets vs. other European stock markets.

Economic Policy Issue 10 Erratum: Trading Systems in European Stock Exchanges: Current Performance and Policy Options

Economic Policy Issue 10 Erratum: Trading Systems in European Stock Exchanges: Current Performance and Policy Options

Trading Systems in European Stock Exchanges: Current Performance and Policy Options

Stock markets Marco Pagano and Ailsa Roell The deregulation of financial markets and the liberalization of international capital flows raises a number of challenging issues. Market participants and policy-makers are treading largely uncharted territories. This article offers some markers, exploring the implications of economic principles and producing new evidence on European stock exchanges. One vast set of issues concerns the design of market operations. The article compares the merits, both in theory and in practice, of auctions versus market-making, of concentration versus fragmentation of trading, of batch auctions versus continuous markets and of single- versus dual-capacity dealers. Policy conclusions are grounded on a detailed analysis of the experience accumulated on European and North American exchanges. Another theme runs through this article: the implications for the relative competitiveness of European financial markets. Rapid changes have already occurred in the late 1980s: while much wholesale trade has moved to London, continental exchanges have grown at an accelerated pace. We examine whether this is connected to innovations in trading systems and regulation. The paper also attempts to foresee the geographical structure of Europe's integrated stock markets. At stake is the hierarchy of financial centres, the potentially dangerous drift towards competitive deregulation and the scope for wholly computerized trading where market location becomes irrelevant.

Latitude Dependent Circadian Rhythms of Carabid Beetles

Abstract Comparative studies of circadian activity rhythms were performed with three stocks of the species Pterostichus rhaeticus Heer (from Southern Europe, Central Europe, and the Subarctic) and with one Central European stock of the sibling species Pterostichus nigrita Paykull. The hehaviour was investigated in various LD conditions, constant conditions including LL with changes of the illumination intensity and constant darkness with light pulses. The data were analysed with the program system “Timesdia” containing various techniques like power spectrum estimation, periodogram analysis and complex demodulation. This allowed to reveal the time course of rhythms and to determine the number of phase jumps as a measure for precision. With the help of these methods, the activity patterns are classified in different types of behaviour: synchronization, temporarily synchronization, aperiodic behaviour, free run, temporarily free run, relative entrainment, and relative coordination. Besides graduated differences between the populations in south-to-north direction (e.g. in the tendency to rhythmic behaviour) the analysis revealed splitting of rhythms into two or even three components of different frequencies and transitions from rhythmic to aperiodic behaviour or vice versa after arbitrarily chosen light pulses in constant darkness. This behaviour cannot be explained by a system which is composed of one single limit cycle oscillator, but the results rather support a multi-oscillator model.

Differences in measurement of day-length and photoperiodism in two stocks from subarctic and temperate climates in the Carabid beetle Pterostichus nigrita F.

Experiments on the measurement of day-length as a basis for photoperiodism were made with a stock of the carabid Pterostichus nigrita from the Subarctic in Swedish Lapland (64-66° N). Results were compared with those of earlier investigations on a Central European stock (51° N). P. nigrita from Lapland reacted differently from the Central European ones in experiments with abnormal photoperiods (cycle durations from 12 to 72 h; light period in all cases 8 h). Whereas, in the Central European stock, short-day induced reactions (previtellogenesis in the females, maturation of the male gonads) could only be observed if those cycles represented multiples of 24 h in whole numbers, 'short-day" reactions in the Lapland stock were inducible with all cycles in nearly 100% of the specimens investigated (only in LD 8:4 was this percentage slightly diminished). Experiments with "dark breaks" of 2 h in extreme long-day (LD 20:4) revealed nearly 100% short-day maturation, irrespective of the temporal location of these dark breaks in beetles from the Lapland stock, whereas in Central European beetles only dark breaks during certain scotophile phases had such an effect. In the Central European P. nigrita, two hour light breaks during the night phase of an LD 14:10 had a destructive effect on short-day maturation processes; in the Lapland stock, these were possible in spite of 1 h light breaks during the night of an LD 19:5. In the Lapland stock, developmental processes which in the Central European stock are confined to short-day conditions could occur in all types of experiments, provided that about 3 to 4 h of darkness were given during each 24 h cycle, whether uninterrupted or not.Light break experiments revealed that the long-day process for ovarian development (vitellogenesis) is induced in the same way as with the Central European P. nigrita. It occurs if light falls into a photosensitive phase during the second half of the 24 h cycle.Thus, for the Subarctic population, a model is proposed in which short-day is measured by means of an hour-glass timer, whereas long-day is perceived by means of a circadian oscillator.