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The euro: Did the markets cheer or jeer?

  • Green, Christopher J.
  • Bai, Ye

We examine if the introduction of the euro had significant and different effects on the stock markets of euro-zone countries, non-euro EU and accession countries, and non-EU countries. We argue that the introduction of the euro was equivalent to a market reform rather than an event whose impact was fully anticipated. Therefore, we use event study methods to examine the stock market responses to the introduction of the single currency in January 1999. We find significant cumulative abnormal returns (CARs) in euro and non-euro European stock markets, but not elsewhere. We investigated cross-sectional variations among countries by regressing the CARs on country inflation and interest rates, controlling for euro and non-euro membership. The results suggest that inflation and interest rates had a significant impact on cross-country variations in response to the euro, and that anti-inflation credibility was a central factor in these variations.

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File URL: http://www.sciencedirect.com/science/article/B6V82-4S03RB9-1/1/36b1a87457276c9396c7c868e67c1838
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Article provided by Elsevier in its journal Journal of Policy Modeling.

Volume (Year): 30 (2008)
Issue (Month): 3 ()
Pages: 431-446

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Handle: RePEc:eee:jpolmo:v:30:y:2008:i:3:p:431-446
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505735

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  1. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
  2. Richard Portes & Helene Rey, 1998. "The Emergence of the Euro as an International Currency," NBER Working Papers 6424, National Bureau of Economic Research, Inc.
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  4. Fölsz, Attila, 2003. "The monetary framework after accession � a political economy analysis of ERM2," European Integration online Papers (EIoP), European Community Studies Association Austria (ECSA-A), vol. 7, 03.
  5. Yakov Amihud & Haim Mendelson & Beni Lauterbach, 1997. "Market Microstructure and Securities Values: Evidence from the Tel Aviv Stock Exchange," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-004, New York University, Leonard N. Stern School of Business-.
  6. Josef Lakonishok, Seymour Smidt, 1988. "Are Seasonal Anomalies Real? A Ninety-Year Perspective," Review of Financial Studies, Society for Financial Studies, vol. 1(4), pages 403-425.
  7. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
  8. Morana, Claudio & Beltratti, Andrea, 2002. "The effects of the introduction of the euro on the volatility of European stock markets," Journal of Banking & Finance, Elsevier, vol. 26(10), pages 2047-2064, October.
  9. French, Kenneth R., 1980. "Stock returns and the weekend effect," Journal of Financial Economics, Elsevier, vol. 8(1), pages 55-69, March.
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