Centre Rules the Markets
The Icfai Journal of Applied Finance, Vol. 14, No. 10, 2008
Posted: 23 Jul 2010 Last revised: 21 Feb 2012
Date Written: July 14, 2008
In this paper we evaluate the impact of the European Monetary Union based on the Fama and French three-factor model. Our research shows that the models based on EMU factors present worse explanatory power than models based on local and international factors, although international factors do not have a significant role. We also find that there is a tendency for the biggest European stock markets to be explained by international factors, contrarily to the smallest. We understand that behaviour as being a signal of integration of the largest capital markets. Finally, we recommend portfolio managers to use the local Fama and French model in the case of small and value stocks and use the local Capital Asset Pricing model in the case of big and growth stocks.
Keywords: European integration
JEL Classification: F30, F36
Suggested Citation: Suggested Citation