Integration and arbitrage in the Spanish financial markets: An empirical approach

Several authors have introduced different ways to measure integration betwe en financial markets. Most of them are derived from the basic assumptions a bout asset prices, like the Law of One Price or the absence of arbitrage op portunities. Two perfectly integrated markets must give identical prices to identical final payoffs, and a vector of positive discount factors, common to both markets, must exist. IF these properties do not hold, the degree t o which they are violated can be defined and considered as a measure of int egration.