US, UK and European Stock Market Integration

This paper examines long-run convergence between US, UK and seven European stock markets. We report evidence to suggest that while real short-run diversification gains may occur, in general they tend to be short-lived. However we also find that US and UK markets arc relatively less bound to L common trend, which would imply that increased stock market merger activity, and any transition to the European common currency by the UK, may lead to relatively large stock market adjustments as markets adapt to these institutional changes.