The Importance of Industry and Country Effects in the Emu Equity Markets
42 Pages Posted: 27 May 2003
Date Written: March 2004
Most empirical studies find that country effects are larger than industry effects in stock returns, although industry effects are gaining importance in recent times. Our results confirm 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 effects relative to country effects in the 1990s. In fact, industry effects present similar magnitude than country effects in the 1999-2001 period. The evolution of the ratio of country to industry effects is explained by the decrease in the cross-sectional variance of interest rate and exchange rate movements across EMU countries. Thus, there is evidence that nominal convergence has reduced the differences among national equity markets.
Keywords: International equity markets, Diversification; Volatility, EMU
JEL Classification: G11, G15
Suggested Citation: Suggested Citation