This paper investigates to what extent the substantial increase in exposures of local European equity market returns to global shocks is mainly due to a convergence in cash flows (“economic integration”), to a convergence in discount rates (“financial integration”), or to both. We find that this increased exposure is nearly entirely due to increasing discount-rate betas. This finding is robust to alternative ways of calculating discount-rate and cash-flow shocks.
Baele, L., & Soriano, P. (2010). The determinants of increasing equity market comovement: economic or financial integration? Review of World Economics, 146(3), 573-589. https://doi.org/10.1007/s10290-010-0060-z