Financial Integration in a Changing World

Joseph Paul Byrne, Andrea Eross, Rong Fu

Research output: Working paper

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Given the rapidly evolving nature of financial globalization, this paper models and pre- dicts financial integration in a changing world. By decomposing integration into global risk, local risk and estimation risk, we argue that greater integration is mainly driven by global factors, not diminishing local effects. The national importance of the global financial cycle varies over time, based upon time varying factor loadings. Financial inte- gration is highly predictable, which is important for international diversification and risk management. We also identify that VIX is a strong predictor of financial integration. This reflects the vulnerability of financial market to extreme events in the United States.
Original languageEnglish
Publication statusPublished - 15 Nov 2017


  • Financial Integration
  • Factor Analysis
  • Bayesian Econometrics
  • Prediction


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