What drives stock market integration? An analysis using agribusiness stocks

RODRIGO ANDRES VALDES SALAZAR, Stephan Von Cramon-Taubadel, Alejandra Engler

Research output: Contribution to journalArticlepeer-review

4 Scopus citations

Abstract

This article explores the drivers of regional stock market integration with a focus on the agribusiness sector across relevant regional trade blocs around the world. We implement panel cointegration models to analyze the stock indices of agribusiness firms in the Southern Common Market (MERCOSUR), European Union (EU), Asia-Pacific Economic Cooperation (APEC), and North American Free Trade Agreement (NAFTA). Based on the literature on market integration and stock return pricing, we identify nine possible determinants of stock market integration, which we separate into three categories: individual market performance, macroeconomic conditions, and agricultural trade. In our analysis, we account for agriculture-specific factors to control for possible structural shifts in financial markets regimes by including the two main commodity price bubbles during last 20 years. Our results show that most of the variables included in our categories have been important factors in promoting regional stock market integration. Moreover, integration among regional stock markets was strengthened by the implementation of trade agreements. This effect is stronger in trade blocs with fewer members, such as NAFTA and MERCOSUR, compared with larger and more heterogeneous blocs, such as the EU and APEC.

Original languageEnglish
Pages (from-to)571-580
Number of pages10
JournalAgricultural Economics (United Kingdom)
Volume47
Issue number5
DOIs
StatePublished - 1 Sep 2016
Externally publishedYes

Keywords

  • Agribusiness
  • Cointegration
  • F36
  • G15
  • Stock market integration
  • Trade blocs

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