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Diversification portfolio strategies and financial integration

Author

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  • Anthony Miloudi

    (Groupe Sup de Co La Rochelle, CEREGE [Poitiers] - Centre de recherche en gestion [EA 1722] - IAE Poitiers - Institut d'Administration des Entreprises (IAE) - Poitiers - UP - Université de Poitiers = University of Poitiers - UP - Université de Poitiers = University of Poitiers - ULR - La Rochelle Université)

Abstract

The goal of this paper is to revisit the effects of the implementation of the Euro system on the level of European stock market integration over the last fifteen years. In this context, two fundamental questions can be raised: Does the asset management industry attain acceptable levels of diversification in their portfolios? Can the convergence of European economies towards Economic and Monetary Union (EMU) and the launch of the single currency lead to an increase in stock market integration? To answer these questions, we empirically investigate the influence of the EMU on covariations in stock market integration/segmentation dynamics using an original principal component analysis in the presence of group structure. The common principal components analysis first developed by Flury (1984) makes it possible to detect the existence of hierarchical structure in the European covariance matrices. The results have implications for investors, because stock market segmentation still exists at the country level. The findings represent an important step towards the setting up of strategic and tactical asset allocation processes.

Suggested Citation

  • Anthony Miloudi, 2011. "Diversification portfolio strategies and financial integration," Post-Print hal-00616575, HAL.
    • Handle: RePEc:hal:journl:hal-00616575
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    Cited by:

    1. José Soares Da Fonseca, 2016. "Euro area stock markets performance comparison and its dependence on macroeconomic variables," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 9(3), pages 245-266.

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