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This paper compares the dynamics of the financial integration process as described by different empirical approaches. To this end, a wide range of measures accounting for several dimensions of integration is employed. In addition, we evaluate the performance of each measure by relying on an established international finance result, i.e., increasing financial integration leads to declining international portfolio diversification benefits. Using monthly equity market data for three different country groups (i.e., developed markets, emerging markets, developed plus emerging markets) and a dynamic indicator of international portfolio diversification benefits, we find that (i) all measures give rise to a very similar long-run integration pattern; (ii) the standard correlation explains variations in diversification benefits as well or better than more sophisticated measures. These Findings are robust to a battery of robustness checks.
We build a novel leading indicator (LI) for the EU industrial production (IP). Differently from previous studies, the technique developed in this paper is able to produce an ex-ante LI that is immune to “overlapping information drawbacks”. In addition, the set of variables composing the LI relies on a dynamic and systematic criterion. This ensures that the choice of the variables is not driven by subjective views. Our LI anticipates swings (including the 2007-2008 crisis) in the EU industrial production – on average – by 2 to 3 months. The predictive power improves if the indicator is revised every five or ten years. In a forward-looking framework, via a general-to-specific procedure, we also show that our LI represents the most informative variable in approaching expectations on the EU IP growth.