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Financial integration, international portfolio choice and the European Monetary Union

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  • De Santis, Roberto A.
  • Gérard, Bruno

Abstract

We investigate the determinants of bilateral international equity and bond portfolio reallocation across a large cross section of countries over the 1997 to 2001 period. We first argue that financial integration is not a global phenomenon, as equity and bond home biases declined significantly only among European countries, Australia, New Zealand and Singapore. Then, we show that the European Economic and Monetary Union (EMU) eased the access to the equity market and, to a larger extent, the bond market; thereby, enhancing regional financial integration in the euro area. Beside the effect of the EMU, the strongest determinants of the changes in portfolio weights are expected diversification benefits and the initial degree of underweight. JEL Classification: C13, C21, F37, G11

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 0626.

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Date of creation: May 2006
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Handle: RePEc:ecb:ecbwps:20060626

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Keywords: EMU; home bias; International portfolio weights; Risk diversification;

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