The Importance of Industry and Country Effects in the EMU Equity Markets
Miguel A. Ferreira
Nova School of Business and Economics; European Corporate Governance Institute (ECGI)
Miguel Ângelo Ferreira
Instituto Superior de Ciências do Trabalho e da Empresa (ISCTE) - School of Business
European Financial Management, Vol. 12, No. 3, pp. 341-373, June 2006
Most empirical studies find that country effects are larger than industry effects in stock returns, although industry effects have gained in importance recently. Our results support the dominance of country effects relative to industry and common effects in the EMU equity markets in the 1975-2001 period. However, there is an increasing importance of industry effect relative to country effect in the 1990s. In fact, industry effects is similar in magnitude to country effect in the posteuro period. The evolution of the ratio of country to industry effect is explained by the decrease in the crosssectional variance of interest rate movements across EMU countries. Thus, there is evidence that nominal convergence has reduced the differences between national equity markets.
Number of Pages in PDF File: 34Accepted Paper Series
Date posted: May 19, 2006
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