Do European Capital Flows Comove?

Silvio Contessi, Pierangelo De Pace
2009 Social Science Research Network  
We study the cross-section correlations of net, total, and disaggregated capital flows for the major source and recipient European Union countries. We seek evidence of changes in these correlations since the introduction of the euro to understand whether the European Union can be considered a unique entity with regard to its international capital flows. We make use of Ng's (2006) "uniform spacing" methodology to rank cross-section correlations and shed light on potential common factors driving
more » ... nternational capital flows. We find that a common factor structure is suitable for equity flows disaggregated by sign but not for net and total flows. We only find mixed evidence that correlations between types of flows have changed since the introduction of the euro. JEL Classification: F32, F34, F36 Keywords: capital flows volatility, foreign direct investment, foreign portfolio investment, uniform spacings, group effects * We thank Serena Ng for providing the MATLAB codes, Ariel Weinberger for capable research assistance,
doi:10.2139/ssrn.1295485 fatcat:g3yl2s6mw5hj3earxypepnkyve