Degree Of Market Integration Research Articles

A Study on Integration of the World Crude Oil Markets Using Price Asymmetry Model

ABSTRACT The concept and methodology of price asymmetry analyses can be applied to the analysis of the regionalization of international crude oil markets. If markets are unified and properties of crude oils are similar, the price movements of crude oil in each market should be symmetric in the cases of price increases and decreases. Accordingly, in this study, the asymmetric movements of crude oil prices were analyzed to test the degree of market integration of the world crude oil markets using the asymmetric error correction model. As the results, the degrees of market integration were estimated differently in the cases of price increases and decreases.

Contrasting palm species and use diversity in the Yucatan Peninsula and the Ecuadorian Amazon

We analyze the relationship between palm species diversity and diversity of palm use in two areas (Amazonian Ecuador; Yucatan Peninsula) of equivalent size but with contrasting characteristics in palm species diversity and morphology, and in the phylogenetic composition of palm flora. The areas also differ in their cultural and socioeconomic contexts. Palm use diversity is significantly higher in the Ecuadorian Amazon than in the Yucatan Peninsula and the lower species diversity of palms in the Yucatan Peninsula is not matched by a more intensive use of the fewer species found there. The taxonomic composition of the palm flora is a poor predictor of extent of use and morphological characteristics of palm species affect usefulness only in the Ecuadorian Amazon. The Yucatecans’ more limited reliance on forest products might explain the observed patterns. Ornamental palm use is an indicator of a general change in plant use patterns associated with tourism and macro-economic development in the Yucatan Peninsula. We find a positive relationship between ecosystem plant diversity and plant use diversity, but socioeconomic factors such as market integration strongly influence the use of local biodiversity. Palms represent a diverse and important natural resource that deserves further investigation to secure its sustainable management and conservation in the two studied sites, regardless of their degree of market integration.

Intraday return and volatility spill‐over across international copper futures markets

PurposeThe purpose of this paper is to investigate the short‐run return and volatility spill‐overs across three major international copper futures markets: London Metal Exchange (LME), New York Mercantile Exchange (NYMEX), and Shanghai Futures Exchange (SHFE).Design/methodology/approachThe analysis utilizes a dynamic conditional correlation GARCH model to explore the return and volatility relationships.FindingsThe return and volatility spill‐overs between the two developed markets, LME and NYMEX, are bi‐directional and significantly stronger when the NYMEX operates an electronic trading system. In addition, significant bi‐directional return spill‐over between the LME (developed market) and the SHFE (emerging market) and significant uni‐directional volatility spill‐over from the LME to the SHFE are documented.Research limitations/implicationsThe evidence suggests that degree of market integration and trading mechanism play crucial roles in the return and volatility transmission across the three major copper futures markets. Higher level of market integration and easy access to trading information lead to faster information dissemination and help to establish stronger relationships of returns and volatility across the markets. This is consistent with the findings in the equity markets.Originality/valueThe study provides empirical evidence of short‐run information transmission between developed and emerging copper futures markets.

Competition between Different Farmed and Wild Species: The US Tilapia Market

Abstract This article is an extension of previous work on tilapia in the US market (Norman-Lopez and Asche 2008). This study investigates the degree of market integration between fresh farmed tilapia fillets and fresh fillets of farmed catfish, wild sea dab, wild blackback flounder, and wild whole fresh red snapper in the US market. The literature suggests farmed and wild fish of alternative species do not compete. However, this may be changing as new farmed species are introduced to new markets. The results indicate no relationship between prices of fresh tilapia and catfish. Hence, there is no evidence that fresh tilapia fillets compete in the same market as catfish fillets. Conversely, fresh farmed tilapia fillets compete with wild whole red snapper, wild fresh fillets of sea dab, and blackback flounder. The implications are important for managing these overexploited wild fish species, as prices will most likely decline with increased imports of fresh tilapia fillets. This could lead to lower investmen...

Price Transmission and Market Integration in Oyo State, Nigeria

Abstract: The paper tests the market integration of the main staple agricultural commodities in Oyo State. Monthly prices in covering a period of 8 years (1994–2001) were obtained from Oyo State Agricultural Development Programme (OYSADP) and analysed using the Ravallion Model. The study also calculated the Indices of Market Concentration (IMC) to measure the degree of spatial market integration. The IMCs for cassava, yam, white maize and yellow maize were 0.3074, 0.0814, 0.02712 and 0.1648 respectively. The IMCs imply high short‐run market integration between the reference and rural markets. The market integration indices confirm that price changes in the urban markets (Bodija and Ilora) translated to changes in the price of cassava, yam, maize, yellow maize in rural markets (Akanran, Towobowo, Anko, Irepodun, Oje, Kajola, Akala and Aberu). It is concluded that agricultural commodity arbitrage is working. The degree of market integration can be enhanced by the provision of not only transport infrastructure but by provision of adequate formal marketing information and standardization of weights and measures in the system.

The Degree of Market Integration between Local and Global Financial Markets

The Degree of Market Integration between Local and Global Financial Markets

Market Integration and Economic Development: A Long‐run Comparison

AbstractHow much of China’s recent economic performance can be attributed to market‐oriented reforms introduced in the last two decades? A long‐run perspective may be important for understanding the process of economic development occurring today. This paper compares the integration of rice markets in China today and 270 years ago. In the eighteenth century, transport technology was non‐mechanized, but markets were close to being free. We distinguish local harvest and weather from aggregate sources of price variation in a historical sample and in a similarly constructed contemporary sample. Findings indicate the degree of market integration in the 1720s is a very good predictor of per capita income in the 1990s. Moreover, the current pattern of interregional income in China is strongly linked to persistent geographic factors that were already apparent several centuries ago, well before the enactment of modern reform programs.

Price transmission dynamics between informationally linked securities

The paper examines whether location of trade matters in the pricing of internationally listed securities by examining the price dynamics of stocks listed on the Greek and the two German stock exchanges, Frankfurt and Berlin. Through the investigation of the various possibilities of short-run and long-run arbitrage profits it is found that the prices of stocks in the German markets are priced with reference to the Greek market, implying that the location of trade does not matter and that there is a certain degree of market integration. In contrast, it is found that the price discovery process takes place in the German markets, although most of the trading volume is concentrated in the Greek market.

Market Integration and Contagion

Contagion is usually defined as correlation between markets in excess of that implied by economic fundamentals; however, there is considerable disagreement regarding the definition of the fundamentals, how they might differ across countries, and the mechanisms that link them to asset returns. Our research starts with a two-factor model with time-varying betas that accommodates various degrees of market integration. We apply this model to stock returns in three different regions: Europe, Southeast Asia, and Latin America. In addition to examining contagion during crisis periods, we document time variation in world and regional market integration and measure the proportion of volatility driven by global, regional, and local factors.

The Broom Theory: A Perspective on Global Equity Markets

This study establishes and tests a methodology to gauge global markets convergence, i.e., the long-run tendency of different markets to catch-up with a leading market. Under the globalization hypothesis, the differential speeds of the markets worldwide are hypothesized to show some tendencies towards convergence. This point, which has significant bearings on the analysis and choice of global markets, provides information on the degree of market integration, the potential for risk diversification, and a priori expectation of co-movements among the markets. Considering the broad dimensions of globalization, this study limits its scope to the analysis of the convergence or divergence of returns on stocks among eighteen country and seven regional stock exchanges in the world. The results are conclusive. The state-space transition paths of almost all of the exchanges exhibit convergence, though at different degrees. Only a few exchanges exhibit divergence or remain inconclusive. Furthermore, starting sometime in the 1997-1998 years most exchanges appear to depart slightly and gradually from their convergence paths. The implications of this phenomenon are brought to light in terms of the downward pressure on global stock returns in the last few years.

Empirical Analysis of Price Data in the Delineation of the Relevant Geographical Market in Competition Analysis

This paper reviews a number of modern as well as classical econometric techniques suitable for empirically determining whether commodities in physically separated markets belong to the same geographical market. Even though the tools presented generalize to the delineation of the relevant product market our main focus is on the geographical delineation of markets. The analyses rely entirely on the use of price data of different types in an attempt to operationalize the so-called SSNIP methodology for price comparisons. In particular, the stationarity versus non-stationarity of price data appears important because otherwise spurious results can potentially occur. Both bivariate and multivariate price comparisons will be discussed. We also consider situations with data observations covering a relatively long period and where it is likely that structural changes have occurred in the sample period whereby the degree of market integration is likely to have changed. New techniques to deal with such recursive features will be suggested. For the methods presented a discussion of the practical problems and concerns facing the model builder are addressed.

Mexico's integration into the North American capital market

We explore a model of time varying regional market integration that includes three factors for the North American equity market, the local Mexican equity market and the peso/dollar exchange rate. We argue that a useful instrument for the degree of integration is the sovereign yield spread. Applying our methodology to Mexico over the 1991–2002 period, we show that the degree of market integration was higher at the end of the period than at the beginning but that it exhibited wide swings that were related to both global as well as local events. We also discover that Mexico's currency risk is priced. Further, the currency returns process reveals strongly significant asymmetric volatility that is strongly related to the asymmetric volatility of the Mexican equity market returns process. A plausible reason for these results is that currency devaluations in emerging markets like Mexico can cause default-risk crises in local banking systems that mismatch local-currency assets and hard currency liabilities, whereas appreciations produce no such problems. Devaluations that destabilize banking systems are, therefore, more likely than appreciations to increase the volatilities of both the currency's and the equity market's returns.

World capital markets and Finnish stock returns

The paper explores issues related to time-varying global equity market integration from a Finnish perspective. Finland is an interesting market since profound economic changes and financial deregulation have taken place since the mid-1980s. Using Finnish firm size ranked portfolios and a conditional four-factor asset pricing model, several restrictions on asset behaviour are examined. It is found that a proxy for changing market integration — lagged foreign equity ownership — has a significant impact on the relative importance of local and global risk factors. Significant differences are found between the pricing of shares that were freely-available to all (unrestricted shares) and domestic investors only (restricted shares). Results also suggest that major capital market reforms profoundly affect the degree of market integration, but local risk factors do not become redundant.

Market Integration and Contagion

Contagion is usually defined as correlation between markets in excess of what would be implied by economic fundamentals. However, there is considerable disagreement regarding the definitions of the fundamentals, how the fundamentals might differ across countries and the mechanisms that link the fundamentals to asset returns. Our research takes as a starting point, a two-factor model with time-varying betas that accommodates various degrees of market integration between the different markets. We apply this model to stock returns in three different regions, Europe, South-East Asia and Latin America. In addition to providing new insights on contagion during crisis periods, we document patterns through time in world and regional market integration and measure the proportion of volatility driven by global, regional, as well as, local factors.

Endogenous Specialisation and Endogenous Principal‐agent Relationship

The paper develops a general equilibrium model with endogenous principal‐agent relationship within a framework of consumer‐producer, economies of specialisation, and transaction costs. It is shown that if transaction efficiency is low, then autarky is chosen as the general equilibrium where no market and principal‐agent relationship exists. As transaction efficiency is improved, the equilibrium level of division of labour increases, comparative advantage between ex ante identical individuals emerges from the division of labour, and the number of principal‐agent relationships increases. The following features of the model distinguish it from other principal‐agent models in the literature. The principal‐agent relationships are not only endogenous, but also reciprocal between different specialists. In a general equilibrium environment, choice between pure pricing and contingent pricing is endogenised. In the paper, the implications of endogenous transaction costs caused by moral hazard for the equilibrium extent of the market and related degrees of market integration, production concentration, trade dependence, diversity of economic structure, and productivity are explored. The model predicts two interesting phenomena: a man might work harder for the market with moral hazard than working for himself in the absence of moral hazard; a market with moral hazard might be Pareto superior to autarky with no moral hazard.

Market Integration and Technological Change

This paper studies the incentives of firms to introduce new technologies in markets where network effects are sensitive to the identity of the adopter. We model this sensitivity by considering a market in which consumers are located in two economies and network effects across economies are weaker than intra-economy network effects. The strength of cross economy network effects is measured by the degree of market integration. We show that the incentives for technological change are decreasing with respect to the degree of integration and that they are in excess of what is socially desirable. We also show that different generation technologies can coexist only if the market is poorly integrated and that this coexistence is characterized by a form of technological leap-frogging across economies.

The Extent, Pattern, and Degree of Market Integration: A Multivariate Approach for the Brazilian Rice Market

AbstractThe extent, pattern, and degree of integration are analyzed in a multivariate system with cointegrating restrictions. The extent of the market is found by identifying locations that are linked by trade and where prices share identical long‐run information (permanent component). The pattern of integration characterizes interdependence and is analyzed by estimating a vector error correction model. The degree of integration is calculated with persistence profiles of the long run relations. We demonstrate that bivariate models are inadequate for capturing the spatial dynamics of price adjustment. The methodology is applied to the Brazilian rice market and policy implications are discussed.

Market integration in US gasoline markets

This paper analyses the degree of market integration in the retail gasoline markets in the United States after it was completely deregulated in 1981. The monthly average prices of unleaded regular gasoline, excluding taxes, from January 1983 to December of 1998 for five US Petroleum Administration Defense Districts were considered in the analysis. There is evidence of a high degree of market integration in the gasoline markets as evidenced by the Engel and Granger and Johansen cointegration tests, but perfect market integration is rejected in all but a few cases.

The Rationale of the International Equity Return Correlation Structure

Correlation in international stock market returns is unstable over time. It is empirically shown that for most markets the correlation of negative returns exceeds that for positive returns. With rational consumption based asset pricing, any comovement behavior of asset returns must be linked somehow to the correlation pattern of international consumption streams. The extent of this linkage depends on the degree of market integration. In this paper, I adapt the general equilibrium model of asset pricing by Campbell and Cochrane (1999) to the international context and calibrate the degree of market integration to reproduce the level of international stock market correlations for the countries Canada, France, Germany, UK, and US. The paper then shows how far a purely rational explanation of higher correlations in down-markets can go. It turns out that the model's internal dynamics is not able to produce higher correlations in down-market phases with i.i.d multivariate normal consumption increments. Thus, the empirical behavior must be caused by characteristics of consumption data alone. A historical simulation shows that there is indeed a dependence structure in consumption data supporting this increase in correlation but that there is still room left for alternative explanations like a time-varying degree of market integration.

Analyse empirique de l'intégration des marchés agricoles en Tunisie

Empirical analysis of agricultural market integration in Tunisia The development of the agricultural sector requires that agricultural products be competitive in the domestic and the international markets. This may be shown by the degree of market integration which is studied in this article for the case of Tunisia. Our cointegration analysis results show that the degree of wholesale market integration is low in particular for the strategic products. It is also shown that the distance between markets and the volume of transactions cannot explain this lack of linkage between the markets.