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The effect of the Euro on country versus industry portfolio diversification

  • Flavin, Thomas J.

We examine the relative benefits of industrial versus geographical diversification in the Euro zone before and after the introduction of the common currency. A priori, one may expect that increased stock market correlation would precipitate a move from geographical towards industrial diversification. We employ the empirical model of Heston and Rouwenhorst but show that adopting a panel data approach is a more efficient estimation method. We find evidence of a shift in factor importance; from country to industry. However, this is not exclusive to the Euro zone but is also present for non-EMU European countries. Therefore, fund managers should pursue industrial rather than geographical diversification strategies.

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Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 23 (2004)
Issue (Month): 7-8 ()
Pages: 1137-1158

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Handle: RePEc:eee:jimfin:v:23:y:2004:i:7-8:p:1137-1158
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

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