European economic convergence in stock markets

Abstract

The present research investigates the existence of convergence in price indexes and in volatility of price indexes across 17 European countries and examines whether financial development indicators could explain divergent or convergent phenomena in stock markets. A new methodology of panel convergence testing proposed by Phillips and Sul (2007b) is employed using data from Datastream database and World Bank’s Financial Development and Structure Database. The empirical findings indicated full convergence in prices and in volatility but not in the case of financial development indicators where the results appear to be different.