Template-Type: ReDIF-Paper 1.0
Author-Name: García-Hiernaux, A.
Author-Name-Last: García-Hiernaux
Author-Name-First: Alfredo
Author-Name: Guerrero, D.E.
Author-Name-Last: Guerrero
Author-Name-First: David
Author-Name: McAleer, M.J.
Author-Name-Last: McAleer
Author-Name-First: Michael
Author-Person: pmc90
Title: Market Integration Dynamics and Asymptotic Price Convergence in Distribution
Abstract: This paper analyzes the market integration process of nominal prices, develops a model to analyze market integration, and presents a test of increasing market integration. A distinction is made between the economic concepts of price conver- gence in mean and variance. When both types of convergence occur, prices are said to converge in distribution. We present concepts and definitions related to the market integration process, link these to price convergence in distribution, argue that the Law of One Price is not a sufficient condition for market integration, and present a test of price convergence in distribution. We apply our methodology to two different cases, namely the integration of: i) the inland grains market in 19th Century USA, and ii) the Eurozone long-term bonds market after the euro entered circulation.
Length: 39
Creation-Date: 2015-10-01
File-URL: https://repub.eur.nl/pub/79213/EI2015-30.pdf
File-Format: application/pdf
Series: RePEc:ems:eureir
Number: EI2015-30
Classification-JEL: C22, C32, N70, F15
Keywords: regional and global markets, integration, asymptotic price convergence, mean, variance
Handle: RePEc:ems:eureir:79213