Financial Market Integration Research Articles

Historical Aspects of the Cooperation and Collaboration Between the South African Reserve Bank and Other Role Players

Prior to the enactment of the Financial Sector Regulation Act (FSR Act), the regulation of cooperation and collaboration between the South African Reserve Bank (SARB) and other financial role players was not done for the purpose of protecting financial stability or promoting market integrity. The SARB, the Financial Services Board (FSB) and the Bank Supervision Department (BSD) were required by the Banks Act to harmonise supervisory actions and to share relevant information for operational purposes. The lack of adequate cooperation and collaboration arrangements to promote, protect, enhance and maintain financial stability and market integrity gave rise to regulatory gaps and overlapping functions in the financial sector. The provisions for cooperation and collaboration contained in the Banks Act, the Financial Markets Act and the Financial Services Board Act, and the establishment of the Financial Sector Contingency Forum (FSCF) were not adequate to foster effective cooperation and collaboration between the SARB, the BSD, the FSB and other financial role players.

Financial Markets Integration and the Consequences for Financial Stability

Financial integration, as part of the financial market union, implies closer interaction between global economies. The positive contribution of digitization can be found in the specialized literature, but it fails to provide an overview of the link between financial intermediation indicators and the use of digitization, taking into account the impact on the individual. In this sense, the motivation of this research consists in emphasizing therole of digital financial services in reducing poverty, having a beneficial impact on economic development and the economy welfare.The study relevance resides in capturing the Global Findex Index trend, by measuring the use of financial services every 3 years, starting in 2011. As a result, the research aims to analyze the financial intermediation degree, and, implicitly, digitization, based on a survey of 140 economies, using a Vector Autoregressive model, impulse response functions and the variance decomposition of the included macroeconomic variables.The research resultssummarize the fintech contribution in diminishingthe financial instability risks and outlining the policy implications for governments, benefits such as money laundering and reducing corruption.

Blockchain Technology Application and Potential in the Global Securities Trading Market

With the rapid development of financial technology, blockchain technology is gradually permeating the global securities trading market. This paper delves into the current status of blockchain technology applications in this field, covering key aspects such as trade settlement and clearing, securities issuance and trading, identity verification, and compliance management. Through detailed case studies, it powerfully demonstrates its significant reduction in settlement cycles and intermediate links, thereby improving trade efficiency; its substantial reduction in operational costs and additional expenditures due to human errors, thereby lowering costs; and its effective resistance to cyber-attacks through data encryption and tamper-proof characteristics, thereby enhancing security. At the same time, it explores the positive role of blockchain technology in improving market trust by offering transparent transaction records and reducing information asymmetry. The paper further analyzes the challenges faced by blockchain technology in the global securities trading market, including issues with technology maturity such as performance scaling and interoperability, regulatory and compliance issues such as incomplete legal frameworks and policy uncertainties, industry acceptance issues such as conservative attitudes from traditional institutions and insufficient technology popularization education, and security risks such as emerging vulnerabilities and private key management risks. On this basis, it provides a forward-looking outlook on the potential and development trends of blockchain technology in the global securities trading market in the future, including integration trends with other emerging technologies, its role in promoting cross-border transactions and financial market integration, the possibility of innovative financial products and services, and the resulting changes in market patterns. In summary, this paper provides a comprehensive and systematic study of the current status, advantages, challenges, and future development of blockchain technology in the global securities trading market, offering valuable references and insights for further development in this field.

An Overview of the Roles and Functions of Selected Financial Role Players to Protect Financial Stability and Promote Market Integrity in South Africa

The South African Reserve Bank (SARB) and other financial role players such as the Prudential Authority (PA), the Financial Sector Conduct Authority (FSCA), the National Credit Regulator (NCR), the Financial Intelligence Centre (FIC), the Financial Stability Oversight Committee (FSOC), the Financial Sector Contingency Forum (FSCF), the Financial Sector Council of Regulators (FSCR) and the Financial Sector Inter-Ministerial Council (FSIC) play a significant role in the protection and promotion of financial stability and market integrity in South Africa. The SARB has the primary financial stability mandate, whilst the FSCA was established to primarily promote market integrity and enhance market efficiency through protecting and promoting the fair treatment of financial customers and promoting financial literacy programs. As technology advances and new players enter the market, traditional financial institutions are faced with increased competition and the need to adapt and innovate to stay relevant. In this regard, regulatory frameworks and the functions of regulatory bodies should be constantly reviewed to conform to financial technology (fintech) developments and safeguard consumer interests. This article examines the roles and functions of the aforementioned financial role players as regulated by the Financial Sector Regulation Act (FSR Act) and other relevant financial sector laws. This is done to evaluate the effectiveness of their roles and functions to protect and promote financial stability and market integrity in line with fintech and Artificial Intelligence (AI) developments. The paper also evaluates the importance of cooperation and collaboration between the financial role players to fulfil their roles and functions.

Analysing Financial Market Integration between Stock and Precious Metals Indices

Given the global pandemic in 2020 and the Russian invasion of Ukraine in 2022, there is renewed interest in understanding the integration between the Dow Jones (United States), Amman SE General (Jordan), BLSI (Lebanon), EGX 30 (Egypt), ISRAEL TA 125 (Israel), MASI (Morocco), MOEX (Russia) stock indices and the precious metals Gold Bullion LBM, Silver, Handy & Harman, London Platinum, in the period from 1 January 2018 to 23 November 2023. The study aims to address two key questions: i) Have the events of 2020 and 2022 influenced the integration between the capital markets of MENA countries and precious metals? ii) In the case of a significant increase in integration, will this imply a trend towards efficiency or inefficiency in the markets analysed? The results of the cointegration tests show an increase in integrations between the Tranquil and Stress subperiods; for example, platinum rose from zero integrations to 4, being the market most affected by the events of 2020 and 2022, the MOEX increased from 3 to 6 integrations, the Dow Jones index rose from 1 to 3 integrations, the Amman SE General from 1 to 2 integrations. On the other hand, the ISRAEL TA 125 index decreased from 5 integrations in the Calm period to 1 integration during the Stress period. The EGX also decreased from 2 integrations to one integration, the MASI from three to zero integrations, and gold from 1 integration to zero. The BLSI stock index maintained its 1-1 level of integrations, while silver also followed the same 2-2 trend. These results do not allow acceptance of the first research question since it was found that there were increases/decreases in integrations during the 2020 and 2022 events. The DFA slopes were estimated to answer the second research question since most markets showed significant persistence. However, it was found that this persistence did not coincide with an increase/decrease in the level of integration between the markets analysed. Given these results, the second research question was also partially rejected. In conclusion, the results of this study have significant implications for international investors operating in the financial markets of MENA countries.

Impulsive Response Analysis of Financial Markets in QUAD Economies: A VAR Modelling Approach

Financial market integration remains a key focus in academic finance, especially given how crucial it is to portfolio diversification. The purpose of this research is to investigate a crucial yet underexplored aspect like the cointegration of economies with formal or unofficial military ties, focusing on countries within the Quad strategic forum—India, Japan, Australia, and the United States. The daily closing values of benchmark stock market indices of Quad economies viz. Nikkie 225 for Japan, S&P ASX 200 for Australia, NASDAQ composite for the United States, and S&P Sensex for India were considered. Unit root tests, Johansen Cointegration tests, VAR (Vector Autoregressive) model, and the Granger Causality statistics are computed for data analysis. Additionally, the Impulse response function and variance decomposition are computed for better financial market predictions. The result reveals intriguing dynamics: while the Indian stock market initially responds positively to shocks in the Australian market, this effect diminishes over time. Also, movements in the Australian and United States stock markets significantly contribute to predicting fluctuations in the Indian market, contrasting with the limited predictive power of the Japanese stock market. These findings carry significant practical implications for international investors, offering valuable guidance for optimizing portfolio diversification strategies amidst geopolitical and economic complexities. This paper contributes to academic literature by offering empirical insights into the short-term dynamics and causal relationships of Quad countries’ stock markets, setting a foundation for future studies on long-term trends and market responses to external factors.

European Financial Markets Integration and the Politics of Credit Rating Agencies: An Econometric Approach to Study Microeconomic Dynamics and Sustainability

Abstract On sovereign credit default swaps markets, contagion serves as a sobering reminder of the interconnectedness of global financial systems. Like ripples in a pond, the impact of sovereign default or downgrades can cascade across borders, highlighting the intricate web of dependencies among nations. Utilizing sovereign CDS spreads between 2006-2020 on local European markets, the study employs an event study methodology to assess the effects of rating changes on CDS spreads, focusing on negative events such as sovereign rating downgrades. The findings reveal that negative events have a greater impact on the CDS market than positive events, abnormal returns are higher during economic crises, and states with public debt exceeding the Maastricht criteria experience higher abnormal returns. These results suggest that investors are sensitive to adverse news and risk factors, see opportunities for profit during economic turmoil, and closely monitor fiscal sustainability metrics. Understanding and managing contagion risk in these markets requires not only vigilance but also cooperation and coordination among policymakers and market participants.

Deciphering volatility spillovers amidst crises: analyzing the interplay among commodities, equities and socially responsible investments during the COVID-19 shock and financial turbulence

PurposeThis study aims to elucidate the volatility spillovers among commodities, equities and socially responsible investments, underpinning their dynamic correlations during the economic instability wrought by the COVID-19 pandemic and associated financial crises.Design/methodology/approachThis research quantitatively analyzes volatility transmission across various financial assets from January 2005 to October 2020 by employing the Diebold and Yilmaz (2012) spillover index. The methodology incorporates a temporal examination to capture the evolution of volatility dependencies pre and post the emergence of COVID-19.FindingsThe findings indicate substantial volatility spillovers among the assets in question, aligning with the current financialisation of commodity markets and a rise in financial market integration. These spillovers also show variation over time. Notably, the interconnectedness among the assets intensifies during periods of stress. For instance, the total spillover index significantly surpassed 80% toward the end of January 2020, following the onset of the COVID-19 crisis. Furthermore, the results imply that financial markets appear to be segmented.Practical implicationsThe findings afford investors a more comprehensive insight into both the character and scale of the interdependencies across a broad array of financial markets. Indeed, grasping the extent to which financial markets are segmented or integrated during times of stress and stability is crucial for investors. Such understanding is key to more accurately evaluating risks, diversifying investment portfolios and devising more efficient hedging strategies.Originality/valueThis study contributes to financial literature by offering a comprehensive investigation into the spillover effects across a diverse set of asset classes during an unprecedented global health crisis, filling a gap in existing research on market behavior against the backdrop of a pandemic-induced financial crisis.

Trade Agreements and Financial Market Integration in Latin America and the US

The primary objective of this study is to examine the extent of financial integration between Latin American and US financial markets, particularly in light of recent efforts to foster integration through trade agreements. Spanning from 1 January 1990 to 31 December 2019, the sample focuses on major market indices and key sectors. Financial integration is quantified using a DCC multivariate GARCH model, incorporating a smooth transition model, structural breaks, and regression-based approaches. Results indicate increased comovement with the US for main market indices in Argentina, Chile, Colombia, Mexico, and Peru, while Brazil shows a decrease. Similar trends are observed in sectoral analyses. This study also reveals heightened correlation post-trade agreements. Structural break analysis highlights significant shifts in dynamic correlations for countries with US free trade agreements. These findings support the argument of increased financial integration, bearing significance for portfolio diversification and international policy formulation.

Technology and the Evolution of Civil Law: Implications of Cryptocurrency Transaction Regulation

<span lang="EN-US">This research investigates the regulatory implications of cryptocurrency transactions in the context of the evolution of civil law, including consumer protection, prevention of illegal activities, and maintenance of financial market integrity. The background of the research refers to the economic paradigm shift towards digital assets such as cryptocurrencies, which has changed the global financial transaction landscape. This research method involves a combined approach between civil law analysis, a literature study on blockchain technology, and a review of the latest regulations related to cryptocurrencies in Indonesia. The results show that the evolution of technology in cryptocurrencies has presented new challenges to conventional civil law. The unclear legal status of cryptocurrencies, security risks, and potential illegal use are significant concerns. The regulatory implications on cryptocurrency transactions in Indonesia illustrate the government's efforts to accommodate innovation while protecting the public interest. Some recommendations include a more collaborative approach between the government, the industry sector, and legal institutions to develop a regulatory framework that fits the characteristics of these technologies.</span>

The Impact of Financial Integration on Economic Growth in Nigeria

The study investigated the effect financial market integration on economic growth in Nigeria over the period of thirty-two years ranging from 1990 to 2021. The study designed and specified a multiple regression model to examine the individual and joint effects of the proxies of financial market integration (trade openness, credit to private sector and government expenditure) on economic growth in Nigeria (measured in Gross Domestic Product). The model was estimated by Ordinary Least Square technique using E-views 12 statistical package. The annual time series data used were collected from Central Bank of Nigeria (CBN) statistical bulletin and analyzed with the aim of achieving the stated objectives. The study found that trade openness, credit to private sector and government expenditures have individual and joint significant effect on economic growth in Nigeria. Based on the findings, the study therefore concluded that the financial market integration plays a significant positive role in the sustenance of growth of the Nigerian economy

EMERGING STOCK MARKET INTEGRATION: EVIDENCE FROM THE PRE- AND POST-FINANCIAL CRISIS OF 2007-2009

We investigate the interdependence between the US and seven emerging economy stock markets in Brazil, China, India, Malaysia, Mexico, Taiwan, and Thailand. Specifically, we examine how the 2007-2009 financial crisis influenced the dynamics of stock market integration between the US and seven emerging countries by analyzing the short-run and long-run effects of the crisis over pre-crisis (January 1995 to November 2007) and post-crisis (July 2009 to December 2018) periods. The results of Johansen co-integration tests confirm presence of co-integration in both sample periods. Short-run Vector Error Correction Model (VECM) results indicate a significant influence of the US market on the seven markets except for Brazilian and Chinese markets in the pre-crisis period. The pre-crisis long-run results demonstrate significant cointegrating relationships between the US market and the Indian, Malaysian, Mexican, and Thai markets. Only the Mexican market had the same cointegrating relationship with the US market in both periods. The insignificant pre-crisis period cointegrating relationships between the US and Brazilian, Chinese, and Taiwanese markets become significant post-crisis. Although the Indian stock market was cointegrated with the US market in the pre-crisis period, the relationship is insignificant post-crisis. Overall, our findings confirm that the US and seven emerging economy equity markets exhibit some degree of short-run and long-run cointegration. We also find that a negative shock such as a financial crisis may significantly change co-movements among the stock markets. We contribute to the existing literature on financial market integration by examining recent data around the global financial crisis.

Global Financial Market Integration: A Literature Survey

This article undertakes a literature review on the topic of market integration, covering over 380 articles from the 1980s to 2024. The review consists of a qualitative analysis for context and a quantitative analysis for content, identifying key research streams and proposing directions for future research. I have identified six research groups: (1) market segmentation, (2) portfolio diversification, (3) market integration evidence from developed and emerging markets, (4) spillovers and linkages, (5) economic market integration, and (6) financial market integration and volatility. The literature focuses on market integration; it aims to answer the following questions: (1) What is the scope of market integration research? (2) What are the direct influences of market integration looking at top journals and authors and characteristics of most studied and cited topics? (3) What are the past and recent topics studied within the area of market integration? (4) What are the potential future research questions to explore in market integration? The topic of market integration has been controversial in many studies, as seen in policy decision-making, investments, and other related areas; this literature will provide great benefit for such an audience.

Reading Big Data by Machine Learning: The Used of Computer Science for Human Life

Machine learning (ML) models use big data to learn and improve predictability and performance automatically through experience and data, without being programmed to do so by humans. Artificial Intelligence (AI) techniques are being increasingly deployed in finance, in areas such as asset management, algorithmic trading, credit underwriting or blockchain-based finance, enabled by the abundance of available data and by affordable computing capacity. The purpose of this study is to describe in detail how the power of artificial intelligence with its complex system can help the needs of digital technology in the banking sector. The research method used is the elaboration of great thoughts and facts about artificial intelligence. Scientific data is interpreted with analytical power that is as precise as possible, so as to produce a description that meets the logic of structured thinking. The data is taken from relevant and up-to-date literature, the work of scientists who have been disseminated in various weighty scientific publications at the world level. The report can help policy makers to assess the implications of these new technologies and to identify the benefits and risks related to their use. It suggests policy responses that that are intended to support AI innovation in finance while ensuring that its use is consistent with promoting financial stability, market integrity and competition, while protecting financial consumers. Emerging risks from the deployment of AI techniques need to be identified and mitigated to support and promote the use of responsible AI. Existing regulatory and supervisory requirements may need to be clarified and sometimes adjusted, as appropriate, to address some of the perceived incompatibilities of existing arrangements with AI applications.

Priorities of interdepartmental coordination of government authorities in the development of the Russian segment of financial technologies

Subject. The article addresses issues of globalization of the financial services market and Russia's integration into international financial institutions. Objectives. The purpose is to analyze the impact of international sanctions on the development of financial technologies in Russia, search for forms of Russia's participation in the global process of financial sector digitalization. Methods. The study employs general scientific methods of research. Results. The paper offers forms of Russia's participation in the activities of international financial institutions that neither contradict the protection of the country's national interests nor impede the development of integration within the framework of the Eurasian Economic Union and other structures, where Russia plays an important role. Conclusions. The findings can be considered when drafting proposals for the development of infrastructure projects, strengthening Russia's information security.

DO HARD CASES MAKE BAD LAW? THE EFFECTIVENESS OF GERMAN’S APPROACH TO STRENGTHEN FINANCIAL MARKET INTEGRITY

Background: As a direct consequence of the Wirecard scandal from 2020, which brought the work and, above all, the cooperation of the executive board, supervisory board, and external auditors into the focus of the legal discussion, the German legislator adapted the Stock Corporation Act and also the German Corporate Governance Code has been adapted. Executive board members of Wirecard have been subjected to a criminal investigation after reporting fake revenues and air bookings worth billions. The German Stock Exchange, the Federal Institute for Financial Services Supervision, the Financial Reporting Enforcement Panel, the auditing firm, and the Wirecard supervisory board were all criticized for failing to detect the problem earlier. Former Wirecard stockholders lost money, and lawsuits were filed seeking compensation from the statutory auditor, Wirecard AG, and former board members. Research purpose: Following the formal amendment of the law and the GCGC, the focus is now on the effectiveness of the law and the GCGC in practice. The purpose of this study is to assess whether the German solution to strengthening financial market integrity is effective. Research hypothesis: It is hypothesized that German corporate governance requires additional improvements and further reforms. Methods: The analysis of academic literature, journal and magazine articles, reports, and other relevant literature has enabled the author to empirically build the hypothesis of this document and to identify and address major issues that require further amendments in law as well as and additional studies. Conclusions: The reform of the German law has a substantial impact on the work of companies, its main bodies and statutory auditors. It is evident that certain provisions require modification, and further reforms are both expected and necessary to address the gaps. Aspects of trust, transparency, control and monitoring need to be in the focus of the legal discussion as well as the internationalization of stock corporations with the overarching goal to ensure financial market integrity and to regain trust in German companies.

A Study on the Level of Financial Market Integration in Developed and Developing Countries

Ülkelerin finansal piyasalarının entegrasyonu, uluslararası finansal varlık yatırımlarında yatırımcıların küresel mi yoksa yerel risk faktörlerine mi maruz kalacaklarını göstermektedir. Bu bağlamda çalışmanın amacı, gelişmiş ve gelişmekte olan ülkelerin küresel piyasalar ile finansal entegrasyonlarının düzeyinin değerlendirilmesidir. Çalışmada 65 ülkenin finansal piyasa entegrasyonu korelasyon yaklaşımı ve Uluslararası Sermaye Varlıkları Fiyatlama Modeli temelli yaklaşım ile hesaplanmıştır. Bu yaklaşımlara göre, gelişmiş ve gelişmekte olan ülkelerin küresel piyasalar ile entegrasyonun tam olmadığını göstermektedir. Bu nedenle analize konu olan ülkelere yapılan yatırımlarda, yatırımcılar hem küresel hem de yerel risk faktörlerini dikkate almak durumundadır.

Dependence structure between crude oil and BRICS bond markets prior to and during the COVID-19 pandemic

ABSTRACT This study investigates the return and volatility spillovers between BRICS bonds and oil price volatility in the pre-COVID and during COVID periods by employing the bivariate EGARCH model, cross-quantilogram approach, and wavelet coherence framework. The findings are mixed when comparing the volatility transmissions with various nations and in two periods since variations in return and volatility spillovers between oil prices and bond market returns have co-moved through time. In particular, they increased during the COVID-19 outbreak, which supports the idea that financial market integration intensified during the crisis. Additionally, oil prices have a positive impact on bond markets in Russia and South Africa in both periods, while there are weak and negative relationships in China, India, and Brazil in pre-COVID and pandemic periods. This information has consequences for risk management and portfolio decisions for investors with a substantial position in the BRICS bonds market.

글로벌 금융시대 한국 주식시장의 애널리스트 허딩 행태에 따른 텍스트 정보력 연구

Recently, the investment information is spreading in near real-time due to the global integration of the international financial market. At this point, it is essential to resolve the information asymmetry in the capital market to vitalize domestic and foreign investment. Analysts improve market efficiency, by performing information intermediary role between the capital market and investors. However, the herding behavior among analysts in the market can weaken the information quality and lead to inefficiency in the financial market. In this study, the relationship between analyst herding behavior and the text of the report is analyzed. In addition, the effect of the text of the report body on the information power according to the analyst's herding behavior was verified. To this end, the positive and negative emotions shown in the body of the analyst report were extracted as words of up to 2-gram units and merged with the list of positive and negative words of Loughran and McDonald(2011), a sentiment dictionary widely used in the financial field. As a result of the analysis, when an analyst presents a 'bold' opinion that deviates from the consensus, the sentiment of the report body is more extreme than that of an ‘herd’ opinion. In addition, it was confirmed that positive emotion weakens the report information power according to the analyst's herding behavior. This study is expected to alleviate information asymmetry between investors and the financial market. Furthermore, the text mining methodology used in this study can be readily applied to any other kind of text, including News, Social Network Services, or IR reports.

Optimum financial areas: Retooling the governance of global finance

AbstractThis article analyses the political economy of financial stability under conditions of deep cross‐border market integration, adapting the ‘joint products’ approach of Broz among others. Many argue that financial stability is a public good; we propose that it is inherently excludable and that particular conditions must obtain to ensure it is non‐diminishable for all. The difficulties of providing financial stability arise because of the ‘club goods’ nature of monetary and financial systems. We then propose six institutional preconditions that can stabilise a financial market that is integrated across multiple regulatory jurisdictions. We use case studies of Great Britain, the US and Canada to show how national governments have dealt with these political economy dilemmas to stumble towards similar arrangements to stabilise domestic financial market integration. Three criteria relate to the ‘technical substructure’ of markets, while three others focus on macro‐prudential considerations. Together they constitute necessary and sufficient conditions for the provision of financial stability. These criteria generate political economy obstacles both individually and as an interdependent package but can mitigate the costly dynamics of financial market disintegration in times of crisis. We argue that these criteria can be applied across national boundaries as well as across regulatory jurisdictions within them.