The Race to the Bund

A comprehensive study examining European financial integration through the lens of sovereign bond yields, spanning nearly 140 years of financial history from the formation of the EEC to the present day.

Research Innovation

This project develops an alternative method for measuring financial integration using:

• Eigendecomposition of time-dependent yield correlations
• Analysis of sovereign bond datasets from 1872-2010
• Comparison of standard yield spread analysis with novel eigenvalue-based measurements

Key Historical Findings

The analysis reveals significant integration periods following:

1. Single European Act (1987) - Early harmonization efforts
2. Maastricht Treaty (1993) - Foundation of the European Union
3. Euro Adoption (1999) - Monetary union implementation

The study also documents how global financial crises have “significantly degraded financial integration,” providing crucial insights for policymakers.

Methodology

• Time-series analysis of sovereign bond yields across EU countries
• Novel eigenvalue-based integration measurement technique
• Historical comparison across multiple integration epochs
• Statistical validation of integration patterns

Publication

• The Race to the Bund: Aggregate European and State-Level Integration from the EEC to Present
• Author: Michael James Bommarito II
• Published on SSRN: April 2011

Academic Contribution

This work provides:

• A new quantitative framework for measuring financial integration
• Historical perspective on European economic convergence
• Evidence of pre-Maastricht integration periods previously undocumented
• Insights into the fragility of financial integration during crises