SPEED OF FINANCIAL INTEGRATION BEFORE AND AFTER EUROPEAN UNION MEMBERSHIP

This paper investigates financial integration of developing equity markets of European Union members which are Romania, Bulgaria and Croatia with global dominant equity markets. The analysis is performed at the country level using daily (five days) and monthly national stock market indices for three different periods: period before EU membership, period after EU membership, and whole period starting from September 1997 to December 2012. Augmented Dickey-Fuller test statistic, Granger causality, Granger cointegration test and recursive cointegration methods are employed. Empirical results show that all indices are integrated of order one. The relationship is more significant in the period after European Union membership, but not significant in the period before European Union membership. For Croatia, US's S&P500 index has the strongest impact on CROBEX in whole period. The result implies that European Union membership has strong positive impact on the integration of developing European Union countries.