Advanced Search
MyIDEAS: Login to save this paper or follow this series

The Introduction of the Euro and its Effects on Investment Decisions

Contents:

Author Info

  • Haselmann, Rainer
  • Helmut, Herwartz

Abstract

In this paper we examine changes on investment decisions induced by the introduction of the Euro. There are two potential sources of portfolio reallocation. First, the introduction of the Euro diminished exchange rate risks within the EMU region, which relieved European investors from currency risk associated with intra-EMU investments. Second, monetary policy has been bundled within one single institution, which increased the correlation of different national stock and bond market returns. We test for structural breaks in the portfolio holdings of German investors and estimate a market model in the latter in order to account for the two described effects. We observe a significant decrease in national and an significant increase in intra-EMU as well as US investments. Therefore, the establishment of the EMU led to a decrease of investment home bias. --

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://econstor.eu/bitstream/10419/22001/1/EWP-2005-15.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Christian-Albrechts-University of Kiel, Department of Economics in its series Economics Working Papers with number 2005,15.

as in new window
Length:
Date of creation: 2005
Date of revision:
Handle: RePEc:zbw:cauewp:3829

Contact details of provider:
Postal: D-24098 Kiel,Wilhelm-Seelig-Platz 1
Phone: 0431-880 3282
Fax: 0431-880 3150
Web page: http://www.wiso.uni-kiel.de/econ/
More information through EDIRC

Related research

Keywords: investment home bias; realized volatility; Euro introduction;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Haliassos, Michalis & Michaelides, Alexander, 2001. "Portfolio Choice and Liquidity Constraints," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2822, C.E.P.R. Discussion Papers.
  2. Fratzscher, Marcel, 2001. "Financial market integration in Europe: on the effects of EMU on stock markets," Working Paper Series, European Central Bank 0048, European Central Bank.
  3. Rowland, P.F. & Tesar, L.L., 1998. "Multinationals and the Gains from International Diversification," Working Papers, Research Seminar in International Economics, University of Michigan 425, Research Seminar in International Economics, University of Michigan.
  4. Maurice Obstfeld & Kenneth Rogoff, 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Working Papers 7777, National Bureau of Economic Research, Inc.
  5. Albuquerque, Rui & Loayza, Norman & Serven, Luis, 2005. "World market integration through the lens of foreign direct investors," Journal of International Economics, Elsevier, Elsevier, vol. 66(2), pages 267-295, July.
  6. Solnik, B H, 1974. "The International Pricing of Risk: An Empirical Investigation of the World Capital Market Structure," Journal of Finance, American Finance Association, American Finance Association, vol. 29(2), pages 365-78, May.
  7. Claudia M. Buch & Daniel Piazolo, 2000. "Capital and Trade Flows in Europe and the Impact of Enlargement," Kiel Working Papers 1001, Kiel Institute for the World Economy.
  8. Zvi Bodie & Alex Kane & Robert L. McDonald, 1985. "Inflation and the Role of Bonds in Investor Portfolios," NBER Working Papers 1091, National Bureau of Economic Research, Inc.
  9. Neil Shephard, 2005. "Stochastic Volatility," Economics Papers 2005-W17, Economics Group, Nuffield College, University of Oxford.
  10. Michaelides, Alexander, 2003. "International portfolio choice, liquidity constraints and the home equity bias puzzle," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 28(3), pages 555-594, December.
  11. Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
  12. Ole E. Barndorff-Nielsen & Neil Shephard, 2000. "Econometric analysis of realised volatility and its use in estimating stochastic volatility models," Economics Papers 2001-W4, Economics Group, Nuffield College, University of Oxford, revised 05 Jul 2001.
  13. Hau, Harald & Rey, Hélène, 2004. "Can Portfolio Rebalancing Explain the Dynamics of Equity Returns, Equity Flows and Exchange Rates?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4517, C.E.P.R. Discussion Papers.
  14. Pierre-Olivier Gourinchas & Helene Rey, 2005. "International Financial Adjustment," NBER Working Papers 11155, National Bureau of Economic Research, Inc.
  15. Back, Kerry, 1991. "Asset pricing for general processes," Journal of Mathematical Economics, Elsevier, vol. 20(4), pages 371-395.
  16. Karen K. Lewis, 1999. "Trying to Explain Home Bias in Equities and Consumption," Journal of Economic Literature, American Economic Association, vol. 37(2), pages 571-608, June.
  17. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold, 2002. "Parametric and Nonparametric Volatility Measurement," Center for Financial Institutions Working Papers, Wharton School Center for Financial Institutions, University of Pennsylvania 02-27, Wharton School Center for Financial Institutions, University of Pennsylvania.
  18. Tesar, Linda L. & Werner, Ingrid M., 1995. "Home bias and high turnover," Journal of International Money and Finance, Elsevier, Elsevier, vol. 14(4), pages 467-492, August.
  19. Kalok Chan & Vicentiu Covrig & Lilian Ng, 2005. "What Determines the Domestic Bias and Foreign Bias? Evidence from Mutual Fund Equity Allocations Worldwide," Journal of Finance, American Finance Association, American Finance Association, vol. 60(3), pages 1495-1534, 06.
  20. Richard Portes & Helene Rey, 2000. "The determinants of cross-border equity flows," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 20203, London School of Economics and Political Science, LSE Library.
  21. G. William Schwert, 1990. "Why Does Stock Market Volatility Change Over Time?," NBER Working Papers 2798, National Bureau of Economic Research, Inc.
  22. Kpate ADJAOUTÉ, & Jean-Pierre DANTHINE, 2000. "EMU and Portfolio Diversification Opportunities," FAME Research Paper Series, International Center for Financial Asset Management and Engineering rp31, International Center for Financial Asset Management and Engineering.
  23. Jean-Pierre Danthine & Francesco Giavazzi & Ernst-Ludwig von Thadden, 2000. "European Financial Markets After EMU: A First Assessment," NBER Working Papers 8044, National Bureau of Economic Research, Inc.
  24. Huberman, Gur, 2001. "Familiarity Breeds Investment," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 14(3), pages 659-80.
  25. Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers, Princeton, Department of Economics - Econometric Research Program 338, Princeton, Department of Economics - Econometric Research Program.
  26. Baxter, Marianne & Jermann, Urban J, 1997. "The International Diversification Puzzle Is Worse Than You Think," American Economic Review, American Economic Association, American Economic Association, vol. 87(1), pages 170-80, March.
  27. Nelson, Daniel B., 1990. "ARCH models as diffusion approximations," Journal of Econometrics, Elsevier, Elsevier, vol. 45(1-2), pages 7-38.
  28. Geert Bekaert & Campbell R. Harvey, 1997. "Foreign Speculators and Emerging Equity Markets," William Davidson Institute Working Papers Series 79, William Davidson Institute at the University of Michigan.
  29. Merton, Robert C, 1969. "Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 247-57, August.
  30. Alan G. Ahearne & William L. Griever & Francis E. Warnock, 2000. "Information costs and home bias: an analysis of U.S. holdings of foreign equities," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 691, Board of Governors of the Federal Reserve System (U.S.).
  31. Alexander Michaelides, 2003. "International portfolio choice, liquidity constraints and the home equity bias puzzle," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 195, London School of Economics and Political Science, LSE Library.
  32. Dumas, Bernard & Solnik, Bruno, 1995. " The World Price of Foreign Exchange Risk," Journal of Finance, American Finance Association, American Finance Association, vol. 50(2), pages 445-79, June.
  33. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, American Finance Association, vol. 19(3), pages 425-442, 09.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Haselmann, Rainer & Herwartz, Helmut, 2008. "Portfolio performance and the Euro: Prospects for new potential EMU members," Journal of International Money and Finance, Elsevier, Elsevier, vol. 27(2), pages 314-330, March.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:zbw:cauewp:3829. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.