EMU Effects on Stock Markets: From Home Bias to Euro Bias
International Research Journal of Finance and Economics, Vol. 15, pp. 136-158, May 2008
Posted: 14 May 2009
Date Written: May 10, 2008
The shift of perspective from a national basis to a Euro area basis, inevitably induced by EMU, has led member countries to a parallel shift from equity home bias to equity Euro bias. We interpret this evidence by means of a standard mean-variance portfolio selection model modified in order to include information asymmetries, considering the effect of the EMU integration process on equity markets through informational channels, real and financial. We find a stronger informational impact of the financial channel relative to the real channel in shaping EMU countries' equity portfolios after integration.
Keywords: financial integration, portfolio choice, home bias, information asymmetries
JEL Classification: F21, F36, G11, G14, G15
Suggested Citation: Suggested Citation