Monetary Unification and the Price of Risk: An Unconditional Analysis

Review of World Economics, Vol. 139, No. 2, pp. 276-305, 2003.

32 Pages Posted: 11 Dec 2001

See all articles by Hans Dewachter

Hans Dewachter

Catholic University of Leuven (KUL) - Department of Economics; Erasmus Research Institute of Management (ERIM)

Stan Maes

European Commission - DG Internal market and financial services; European Commission - DG Competition; KU Leuven - Department of Economics

Kristien Smedts

KU Leuven - Faculty of Business and Economics (FEB)

Abstract

This paper assesses the effects of monetary unification in Europe on the pricing behavior in financial markets and more in particular on excess returns. We use the standard IAPT framework to analyze the role of the exchange rate in separating excess return pricing accross European countries. We find that, already in the decade prior to EMU, exchange rate changes do not (unconditionally) correlate strongly with financial market movements across countries. Consequently elimination of exchange rate variability through monetary unification is not likely to have had major implications for pricing behavior in EMU markets.

Keywords: EMU, multi-country asset pricing model, exchange risk, price of risk conversion

JEL Classification: F21, G12, G15

Suggested Citation

Dewachter, Hans and Maes, Konstantijn and Smedts, Kristien, Monetary Unification and the Price of Risk: An Unconditional Analysis. Review of World Economics, Vol. 139, No. 2, pp. 276-305, 2003., Available at SSRN: https://ssrn.com/abstract=293080 or http://dx.doi.org/10.2139/ssrn.293080

Hans Dewachter

Catholic University of Leuven (KUL) - Department of Economics ( email )

Center for Economic Studies
Naamsestraat 69
Leuven, B-3000
Belgium
+0032 16 326859 (Phone)
+0032 16 326796 (Fax)

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Konstantijn Maes

European Commission - DG Internal market and financial services ( email )

Rue de la Loi 200
Brussels, B-1049
Belgium

European Commission - DG Competition ( email )

Place Madou, Madouplein 1
Saint-Josse-ten-Noode/Sint-Joost-ten-Noode
Brussels, B-1049
Belgium

KU Leuven - Department of Economics ( email )

Naamsestraat 69
2nd Floor
B-3000 Leuven
Belgium

HOME PAGE: http://www.econ.kuleuven.ac.be/ew/academic/intecon

Kristien Smedts (Contact Author)

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
180
Abstract Views
1,748
rank
182,801
PlumX Metrics