The Impact of the EMUon the Structure of European Equity Returns: An Empirical Analysis of the First 21 Months

June 1, 2001

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Thomas Kraus. The Impact of the EMUon the Structure of European Equity Returns: An Empirical Analysis of the First 21 Months, (USA: International Monetary Fund, 2001) accessed December 3, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Using symmetric data sets of 92 weekly return observations before and after the introduction of the euro, the paper analyzes the impact of the new currency on the return structure of equity markets in the European Monetary Union. Variance decompositions, cluster analyses, and principle component analyses are used to explore the changes in the structural relations. European industry factors are found to have dramatically increased in importance with the launch of the single currency, and a new 'country-size' factor in European stock returns is detected. Furthermore, inner-European correlations are documented to have been reduced sharply with the start of the monetary union.

Subject: Currencies, Econometric analysis, Economic sectors, Factor models, Financial institutions, Financial markets, Industrial sector, Money, Stock markets, Stocks

Keywords: Correlations, Country factor, Currencies, Dow Jones Euro STOXX® index, EMU, EMU country, Equity markets, Euro, Euro introduction, Europe, Factor models, Factor portfolio, Global, Industrial sector, Industry factor, Industry sectors, Introduction of the Euro, Market capitalization, Start of the EMU, Stock markets, Stocks, WP

Publication Details

Pages:

40
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2001/084
Stock No:

WPIEA0842001
ISBN:

9781451850642
ISSN:

1018-5941

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