The aim of this study is to investigate whether the Turkish stock market is integrated or not with the European Union (EU) countries stock markets as a potential candidate for entering the EU. We use Engle-Granger co-integration test to investigate long-run co-integration relations between the Turkish stock market and the EU stock markets. We found long-run co-movements for all the markets indicating limited benefits for portfolio diversification for the EU investors in the Turkish stock market. Also, using a dummy variable, we examine whether integration between the markets increased or decreased during the post-Customs Union (CU) period. The results show increasing co-integration only with the Austrian market among the developed markets of the EU countries and with the Eastern European (EE) markets except Hungary, integration with all the other markets decreased after the passage to the CU.

The aim of this study is to investigate whether the Turkish stock market is integrated or not with the European Union (EU) countries stock markets as a potential candidate for entering the EU. We use Engle-Granger co-integration test to investigate long-run co-integration relations between the Turkish stock market and the EU stock markets. We found long-run co-movements for all the markets indicating limited benefits for portfolio diversification for the EU investors in the Turkish stock market. Also, using a dummy variable, we examine whether integration between the markets increased or decreased during the post-Customs Union (CU) period. The results show increasing co-integration only with the Austrian market among the developed markets of the EU countries and with the Eastern European (EE) markets except Hungary, integration with all the other markets decreased after the passage to the CU.