Diversification in Euro Area Stock Markets: Country vs. Industry

26 Pages Posted: 16 May 2007

See all articles by G. A. Moerman

G. A. Moerman

AEGON Asset Management; Erasmus University Rotterdam (EUR) - Department of Financial Management

Abstract

The harmonization of fiscal and economic policy within the European Monetary Union (EMU) has had a considerable impact on the economies of member countries. In particular, several studies indicate that the proceeding economic integration among euro area countries has important consequences for the factors driving asset returns in financial markets. However, these studies rely on one specific methodology (Heston and Rouwenhorst, 1994, 1995), that has recently been critized as too restrictive. This study adopts a mean-variance approach instead. Using recent euro area stock markets data, we find strong evidence that diversification over industries yields more efficient portfolios than diversification over countries.

Keywords: EMU, euro area stock markets, portfolio diversification, industry factors, country factors, European integration process

JEL Classification: G11, G15

Suggested Citation

Moerman, Gerard A., Diversification in Euro Area Stock Markets: Country vs. Industry. Journal of International Money and Finance, 2008. Available at SSRN: https://ssrn.com/abstract=986301

Gerard A. Moerman (Contact Author)

AEGON Asset Management ( email )

P.O. Box 202
2501 CE The Hague
Netherlands
+31 70 344 8318 (Phone)

Erasmus University Rotterdam (EUR) - Department of Financial Management ( email )

P.O. Box 1738
Room T09-53
3000 DR Rotterdam
Netherlands
+31 10 408 2790 (Phone)

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