Analysis of Financial Markets Integration Between Four Countries

This report provides an in-depth analysis of financial market integration among Morocco, Spain, the United Kingdom, and Germany. Employing the Dynamic Conditional Correlation (DCC) GARCH model, the study investigates the interconnectedness of these markets, focusing on factors such as economic conditions, inflation rates, and stock market volatility. The research examines the influence of market factors and systematic risks on stock prices and profitability. It presents findings through various statistical methods, including time series plots and regression analysis, utilizing data from stock exchanges in Casablanca, Madrid, London, and Frankfurt. The literature review highlights the importance of financial market integration and its implications for international portfolio diversification. The report concludes by assessing the volatility of each market and its relation to the others, providing insights into the dynamics of financial integration within these economies. The report also includes an analysis of the countries' trade indicators.

FINANCE
Module Number-

Executive summary
This research paper focuses on the Financial Markets Integration between Kingdom
of Morocco, Spain, United Kingdom and German. However, it is analysed that financial
market of the one country is dependent upon the several factors such as economic condition,
current value and inflation rate of the other country as well. It is found that in order to
analyse the financial market connection between Morocco and United Kingdom, in this
research Dynamic Conditional Correlation Model (DCC GARCH) and, “GARCH class
models have been used to assess the volatility in the market condition and other factors which
may affect the changes in the financial market of these countries. Nonetheless, the volatility
of the financial market of one country is dependent upon the several factors such as
properties of the assets, market return, return index, and return on capital employed of the
industry of the particular economic and foreign exchange reserve as well. However, the stock
market volatility of the financial market of the economics of Morocco, Spain, United
Kingdom and German is highly dependent upon the stock market price index, profitability of
the companies listed on the stock exchanges and return on capital employed earned by the
different companies. It is analysed that the changes in the stock price of the different
companies listed on the stock exchange is highly dependent upon the market factors and
systematic and unsystematic risk factors. However, the inflation rate, economic condition and
purchasing power of the economic highly influence the financial market of the company. In
this paper, different graphs and methods have been used to assess the Financial Markets
Integration between Kingdom of Morocco, Spain, United Kingdom and German. It is found
that the coefficients of the different financial market factors of the economics of the given
countries are positive and significant at 5%, suggesting which reflects that Morocco and
Spain and positive integration with the changes in the financial market of the UK and
Germany. It reflects that if there is changes in the financial market by 1% in Germany and
UK then there will also be positive changes in the financial market of Morocco and Spain.

Table of Contents
Executive summary...............................................................................................................................1
Table of Contents..................................................................................................................................2
Introduction...........................................................................................................................................2
Literature review...................................................................................................................................3
References...........................................................................................................................................10

Introduction
With the changes in the international business economic, there are several factors
which are interrelated to the economics of the one country with other. In this research, the
main emphasises have been made on the volatility of the financial market of one country is
dependent upon the several factors such as properties of the assets, market return, return
index, and return on capital employed of the industry of the particular economic and foreign
exchange reserve as well. In the starting of the research, a critical analysis of the volatility of
the financial market of one country in context with the economics of the other countries have
been taken into considerate. The literature review given helps researchers to assess the
several articles on the Financial Markets Integration between Kingdom of Morocco, Spain,
United Kingdom and German. It also reveals the properties of the assets, market return,
return index, and return on capital employed of the industry of the particular economic and
foreign exchange reserve as well which has direct and indirect relation with the financial
markets Integration between Kingdom of Morocco, Spain, United Kingdom and German.
After that, research method have been described which reveals the various methods and data
collection technique to gather the required imperative information to assess the volatility
factors and changes in the financial market of the given countries. The secondary data
sources such as use of journal articles, documents, annual report of companies and financial
yahoo finance have been used to gather the required information on the volatility of the
financial market of the Morocco, Spain, United Kingdom and German. However, in order to
make the analysis of the gathered data, researcher has used the summary statistics of returns
for MASI, IBEX, FTSE and DAX and the different statistical methods such as Times series
plot of FTSE stock price index, GARCH model for IBEX stock exchange and regression
analysis method have been used to analysis the data. Nonetheless, in order to assess the
financial viability of the financial market of the different economic given, researcher has
gathered the weekly data of four composite stock prices namely MASI of Casablanca stock
exchange, IBEX of Madrid stock exchange, FTSE of London stock exchange and DAX of
Frankfurt stock exchange After that, data analysis method have been used to evaluate the
gathered data to come with the outcome. Nonetheless, in order to assess the financial market
condition of the economics of the given country, there is need to set up Implications on
International Portfolio Diversification. It will help in assessment of the different stocks and
other securities of the economic and its offered return to the investors for the given time
period (Bhattacharya, Paramati, Ozturk, & Bhattacharya, 2016). Nonetheless, the literature

review given helps researchers to assess the several articles on the Financial Markets
Integration between Kingdom of Morocco, Spain, United Kingdom and German. It also
reveals the properties of the assets, market return, return index, and return on capital
employed of the industry of the particular economic and foreign exchange reserve as well
which has direct and indirect relation with the financial markets Integration between
Kingdom of Morocco, Spain, United Kingdom and German. However, regression analysis
method and data matrix method have been used to assess the interrelated factors which affect
the financial market of the different countries and other influencing factors setting up relation
between the economics of these countries. However, the data analysis method focuses on the
qualitative data of the research. This qualitative data have been presented by using the
graphical presentation and time serious method support the time value of cash inflow and
outflow of the different economy of Morocco, Spain, United Kingdom and German. In the
end, of this research, data analysis reveals that MASI stock return on average has lower
fluctuations compare to IBEX stock return which shows that the economics of the Spain is
highly volatile as compared to economic of other country (Buckley, & Casson, 2016).
Literature review
The evaluation of the financial markets integration between Kingdom of Morocco,
Spain, United Kingdom and German is highly based on the procedure and method used to
check at a number of properties concerning asset return volatility. It helps in improvement of the need
for a time varying conditional model to catch the asymmetric dynamics in volatility. They believed
that the DCC GARCH model is properly to estimate stock markets correlations.
As per the perception of the Hooghe, & Marks, (2005), it is evaluated that financial
Market Integration is a phenomenon in which different financial countries which are
neighboring, regional or even global economies are closely linked together. Financial Market
integration is pursued and followed by the mostly countries worldwide. Financial Markets
Integration is a principle driver of globalization. As stated by Majone, 2009) it is considered
that Financial Markets Integration allows the sellers and buyers of different kind of markets
and capital get access of foreign currencies, Information of other markets, Bank loans,
Government Bonds, Securities, Capital, Technology, Work Culture etc. Global Markets are
now working and sharing data and information 24/7 due to the phenomena of Financial
Market Information. As stated by Pelkmans, (2013) it is divulged that various forms of
Financial Market integration are sharing Technology, sharing market cutting edge

technologies, access to Foreign Currencies, sharing of best practices of financial
organizations, sharing work culture, borrow and raise fund directly from foreign markets and
global organizations, rapid adaptations of newly engineered financial products among
financial institutions in different economies, cross border investment and capital flow, selling
domestic product and technologies directly into international market, and foreign
participation in domestic market and capitals.
As per the views of Johnston, & Regan, (2016), it is evaluated that Kingdom of
Morocco is very neighborly attached and associated country of European Union. The
relations between Kingdom of Morocco and Germany and Spain and United Kingdom are
very gracious and standard with each other. As suggested by Jones,, Kelemen, & Meunier,
(2016) it is revealed that the relations between these countries are framed in European
Neighborhood Policy and the Union for the Mediterranean. The Kingdom of Morocco has
been recognized as an advanced status on opening up of high levels or Political cooperation.
The Main and legal agreement between these countries are a set of 2000 Association
Agreement, several other agreements contains sectoral issues. The relation between Kingdom
of Morocco and European Union have been already established since 1960. As stated by
Stafford-Smith, et al. (2017). It concluded a commercial agreement between these countries.
But in 1976, first co-operation agreement was signed between Kingdom of Morocco and
European Union. Morocco and European Union have drafted and adopted Euro-
Mediterranean Partnership in 2005. The both have started on working on an action plan in
Euro-Mediterranean Partnership, portraying the next step of participation and cooperation. As
stated by Magone, Laffan, & Schweiger, (2016) it is divulged that the Kingdom of Morocco
with the help of Neighborhood Action Plan the country has embarked on a major effort and
stabilize and align itself to the standards of Neighborhood Action Plan and the legislation of
this action plan. The Neighborhood action plan enables the Kingdom of Morocco to gradually
exploit the possibilities and advantages of the Euro-Mediterranean Policies. As per the views
of Cantoni, & Rignall, 2019) it is depicted that this improves the relations between both, The
Kingdom of Morocco and the European Countries like Germany, United Kingdom and Spain.
This relations also requires all the countries to create necessary legislative and institutional
condition within the countries and even in other countries in which the kingdom commands
its trade. All the agreements between Kingdom of Morocco and countries like Germany,
Spain and United Kingdom are bilateral and supportive to both the parties in healthy manner
and fair for both the sides.

As suggested by Baylis, Smith, & Owens, (2017) it is divulged that fisheries
agreement have been periodically signed between European Union and Kingdom of Morocco
since 1980s allowing European countries like Spain to fish in Moroccan waters in exchange
of monetary contribution. Countries like United Kingdom have signed bilateral agreement
with Kingdom of Morocco for free trade between both the countries. The Countries from
European Trade Unions and The Kingdom of Morocco have been signing the agreement of
free trade since 2000. Recently, all the countries in European Unions and Kingdom of
Morocco have announced and planned to extend and increase the free trade facilities not only
in goods but also in Agricultural and services industries, giving Kingdom of Morocco the
same status and standards like any other European Country which is a part of European Trade
Union. The Morocco and Spain have signed a free trade agreement with each other in the
name of Euro-Mediterranean Free Trade Area.
Foreig
n Trade
Indicators
201
3
201
4
201
5
201
6
201
7
Impor
ts of
Goods (millio
n USD)
45,1
90
45,8
32
37,5
14
41,5
28
44,9
24
Export
s of
Goods (millio
n USD)
21,9
72
23,8
26
21,8
86
22,7
73
25,3
32
Impor
ts of
Services (milli
on USD)
6,41
8
7,69
3
7,03
9
8,60
4
8,68
6

Foreig
n Trade
Indicators
201
3
201
4
201
5
201
6
201
7
Export
s of
Services (milli
on USD)
13,9
35
15,2
23
13,7
46
15,3
79
16,5
24
Impor
ts of Goods
and
Services (Ann
ual %
Change)
-0.1 3.8 -1.1 15.4 5.9
Export
s of Goods
and
Services (Ann
ual %
Change)
-0.0 9.0 5.5 5.1 8.8
Impor
ts of Goods
and
Services (in
% of GDP)
47.2 46.8 42.1 45.3 46.7
Export
s of Goods
32.8 34.3 34.3 35.1 36.8

Foreig
n Trade
Indicators
201
3
201
4
201
5
201
6
201
7
and
Services (in
% of GDP)
Trade
Balance (milli
on USD)
-
21,592
-
21,055
-
14,688
-
17,712
-
18,160
Trade
Balance
(Including
Service) (milli
on USD)
-
14,810
-
13,690
-
7,928
-
10,937
-
10,693
Foreig
n Trade (in %
of GDP)
80.0 81.2 76.4 80.4 83.5
Source: WTO – World Trade Organisation ; World Bank , Latest Available Data
As per the views of Lane, & Milesi-Ferretti, (2017) it is divulged that the Main Countries
which are the part of the Financial Market Integration with the Kingdom of Morocco are
listed below with the percentage of the country's trade of the Total Imports and Exports of the
goods and services of the Kingdom of Morocco. It shows main trade partners countries of
Kingdom of Morocco.
As suggested by Buckley, & Casson, (2016) it is depicted that Morocco is an open Economy.
The Kingdom of Morocco has always welcomed the Financial Market Integration, which has

led the growth of Kingdom of Morocco. The Trade of Morocco represent 83.73% of GDP of
the country. Cars, Wires and Cables, Textile products, Gas are the products which are highly
grossed in the country for trade. Spain the top supplier of Morocco and also its top customer
according to the latest data available. Germany is also a main trade partner apart from Spain
to Kingdom of Morocco. As per the views of Algan, Dustmann, Glitz, & Manning, 2010) it
is revealed that Morocco has a negative trade balance, which continues to deplete its foreign
exchange and reserves. Morocco's foreign Exchange Office issued these following trade data
of the country trade of different years of trade of the imports and exports report of the
country.
Main
Customers
(% of Exports)
2016
Spain 23.3%
France 21.1%
Italy 4.6%
United States 3.5%
India 3.3%
Turkey 3.3%
United 2.9%

Main
Customers
(% of Exports)
2016
Kingdom
Germany 2.8%
Brazil 2.6%
The Main products which are the part of Financial Market Integration of The Kingdom of
Morocco and Germany, Spain and United Kingdom are very vast. All these Countries share a
vast number of goods and services trade between Kingdom of Morocco and European
Union’s Members. However, the financial institutions of these countries have shown the
different data and there has been found interrelation between the economic value of the
countries and share price movement of the industries. However, GARCH model for IBEX
stock exchange and regression analysis method have been used to analysis the data.
Nonetheless, in order to assess the financial viability of the financial market of the different
economic given, researcher has gathered the weekly data of four composite stock prices
namely MASI of Casablanca stock exchange, IBEX of Madrid stock exchange, FTSE of
London stock exchange and DAX of Frankfurt stock exchange. It is critically evaluated that
the share price of the differnet companies are revealing that due to the changes in the market
factors, economic condition and purchasing power, there has been found the drastic impact
on the profitability and earning efficiency of the company.