Assets related to a specific industry are traded at the same price on stock exchanges around the world with market integration.
Market integration is a term used to identify a phenomenon in which markets for goods and services that are related in some way to each other experience similar patterns of increase or decrease in terms of the prices of those products. The term can also refer to a situation where the prices of related goods and services sold in a defined geographic location also begin to move in some kind of pattern similar to each other. Sometimes the integration can be intentional, with a government implementing certain strategies as a way of controlling the direction of the economy. At other times, the integration of markets may be due to factors such as changes in supply and demand that have an indirect effect on multiple markets.
When there is market integration, events that occur in two or more markets are exerting effects that also cause similar changes or changes in other markets that focus on related goods. For example, if the demand for dolls in a certain geographic market were to suddenly drop by 50%, there is a good chance that the demand for doll clothes would also drop proportionately within that same geographic market. If the market for babies increases, it would normally mean that the market for doll clothes would also increase. Both markets would have the opportunity to adjust prices to meet the new circumstances of demand, as well as adjust other factors such as production.
Market integration can occur with virtually any type of related market. With stock market integration, similar trends in the trading prices of assets related to a given industry can be found in two or more markets around the world. Also, financial market integration can occur when lending rates in several different markets begin to move in parallel with each other. In some cases, integration within a nation may involve the emergence of similar patterns in the financial, capital, and stock markets, and these trends come together to exert a profound influence on that nation’s economy.
Market integration can often be a very positive development, especially if the emerging pattern regarding prices is indicative of an increasingly prosperous economy. At the same time, evaluating cross-market integration can also be a useful tool to identify less-than-desirable trends and have an opportunity to start reversing those trends while there is still time. For this reason, financial analysts and economists often monitor activity in related markets, identify any signs of integration, and make recommendations on what strategies can be used to make the most of the emerging situation.