Centre Rules the Markets

The Icfai Journal of Applied Finance, Vol. 14, No. 10, 2008

Posted: 23 Jul 2010 Last revised: 21 Feb 2012

See all articles by Paulo F. Pereira Alves

Paulo F. Pereira Alves

CMVM - Portuguese Securities and Exchange Commission, ISCAL and Lusofona University

Miguel A. Ferreira

Nova School of Business and Economics; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Date Written: July 14, 2008

Abstract

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

Pereira Alves, Paulo F. and Ferreira, Miguel Almeida, Centre Rules the Markets (July 14, 2008). The Icfai Journal of Applied Finance, Vol. 14, No. 10, 2008. Available at SSRN: https://ssrn.com/abstract=1159709

Paulo F. Pereira Alves (Contact Author)

CMVM - Portuguese Securities and Exchange Commission, ISCAL and Lusofona University ( email )

Rua Laura Alves n.º 4 Apartado 14258
Lisbon
Portugal

Miguel Almeida Ferreira

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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