Gerard Moerman
- 6 April 2004
- WORKING PAPER SERIES - No. 327Details
- Abstract
- The harmonisation of fiscal and economic policy within the European Monetary Union (EMU) has had a considerable impact on the economies of member countries in the past decade. 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. This study concentrates on the implications of the changing structure of security returns for asset management. Using recent euro area stock markets data, we find clear evidence that diversification over industries yields more efficient portfolios than diversification over countries. We show that this result is robust with respect to the information technology-hype and different volatility regimes. This contrasts with e.g. Rouwenhorst (1999), who finds, based on a different methodology and a different sample period, that country diversification strategies are superior. We regard this paper as a robustness check challenging the existing strand of literature and show that Rouwenhorst's (1999) conclusions seem to be outdated.
- JEL Code
- G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G15 : Financial Economics→General Financial Markets→International Financial Markets
- 23 December 2003
- WORKING PAPER SERIES - No. 297Details
- Abstract
- This paper uses the co-incidence of extreme shocks to banks' risk to examine within country and across country contagion among large EU banks. Banks' risk is measured by the first difference of weekly distances to default and abnormal returns. Using Monte Carlo simulations, the paper examines whether the observed frequency of large shocks experienced by two or more banks simultaneously is consistent with the assumption of a multivariate normal or a student t distribution. Further, the paper proposes a simple metric, which is used to identify contagion from one bank to another and identify "systemically important" banks in the EU.
- JEL Code
- G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
F36 : International Economics→International Finance→Financial Aspects of Economic Integration
G15 : Financial Economics→General Financial Markets→International Financial Markets