Munich Personal RePEc Archive

Efficiency and Risk Convergence of Eurozone Financial Markets

Wild, Joerg (2015): Efficiency and Risk Convergence of Eurozone Financial Markets. Published in: Research in International Business and Finance , Vol. 36, (January 2016): pp. 196-211.

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Abstract

This paper discusses beta and sigma convergence of commercial, savings, and cooperative banks in the Eurozone from 1999 to 2012. For this purpose, concepts of the growth and efficiency convergence literature are consulted and GMM, fixed effects models, and OLS are applied. Convergence is analyzed by calculating two efficiency metrics – data envelop- ment analysis (DEA) and stochastic frontier analysis (SFA) – and two risk metrics – equity to total assets (E/TA or EQTOAS) and Z-scores (ZSCORN). For commercial banks, efficiency convergence of both metrics is found, however, savings banks show no signs of convergence and cooperative banks only show signs of SFA convergence. Banks of all three specializa- tions show E/TA convergence, but only savings banks convergence with respect to Z-scores. Nevertheless, the EU’s Single Market Program still has a long way to go to create identical conditions for all member countries’ financial markets. The discovery that there are considerable differences between banks’ specializations, and even more, that there is convergence with respect to E/TA as a risk metric are among the main academic contributions of this paper. The final published manuscript can be obtained under: http://dx.doi.org/10.1016/j.ribaf.2015.09.015.

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