The Importance of Industry and Country Effects in the EMU Equity Markets

34 Pages Posted: 19 May 2006  

Miguel A. Ferreira

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

Miguel Ângelo Ferreira

University Institute of Lisbon (IUL) - School of Business

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Abstract

Most empirical studies find that country effects are larger than industry effects in stock returns, although industry effects have gained in importance recently. Our results support 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 effect relative to country effect in the 1990s. In fact, industry effects is similar in magnitude to country effect in the posteuro period. The evolution of the ratio of country to industry effect is explained by the decrease in the crosssectional variance of interest rate movements across EMU countries. Thus, there is evidence that nominal convergence has reduced the differences between national equity markets.

Suggested Citation

Ferreira, Miguel A. and Ferreira, Miguel Ângelo, The Importance of Industry and Country Effects in the EMU Equity Markets. European Financial Management, Vol. 12, No. 3, pp. 341-373, June 2006. Available at SSRN: https://ssrn.com/abstract=903199 or http://dx.doi.org/10.1111/j.1354-7798.2006.00324.x

Miguel Almeida Ferreira (Contact Author)

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 )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Miguel Ângelo Ferreira

University Institute of Lisbon (IUL) - School of Business

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