Portfolio Choice of Financial Investors and European Business Cycle Convergence – A Panel Analysis for EU Countries
AbstractWe investigate the linkage between business cycle convergence and financial portfolio choice for a panel of 18 EU countries. We construct an index of similarity of financial portfolios which we then put into context with the view that “the financial world” has an impact on business cycles and contributes to business cycle convergence via the consumption-wealth linkage. The model which guides our analysis is the International Asset Pricing Model (IAPM). Portfolios of the 18 EU countries investigated by us turn out to become more similar over time. According to our fixed effects GMM TSLS estimations, similar portfolios contribute to a convergence of business cycles - via a convergence of consumption cycles. This turns out to be especially true for country-pairs that include euro area non-member countries and, thus, have quite different income and wealth structures.
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Bibliographic InfoPaper provided by ROME Network in its series ROME Working Papers with number 201312.
Length: 22 pages
Date of creation: Aug 2013
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business cycle convergence; consumption-wealth linkage; International Asset Pricing Model; portfolio choice; panel methods; specialisation index yields;
Other versions of this item:
- Ansgar Belke & Jennifer Schneider, 2013. "Portfolio choice of financial investors and European business cycle convergence: a panel analysis for EU countries," Empirica, Springer, vol. 40(1), pages 175-196, February.
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
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