The Impact of Globalization on the Equity Cost of Capital
The advent of the single currency within the European Union provides a natural experiment to measure how the cost of equity changes as globalization takes place. This is because the launch of the single currency has led to the elimination of currency-related restrictions on the composition of institutional investors’ portfolios and, hence, to increased risk sharing among EU investors. We focus not only on the impact of globalization on the level of the cost of equity, but also on the cross-country and cross-sectoral dispersion in the cost of capital. Over the 1990s it is shown that the cost of equity within EU sectors falls by between 0.5 and 3 percentage points. There is strong evidence of convergence in the cost of equity across different countries in the same sector. Convergence across different sectors is small. An implication for portfolio management is that country effects are becoming smaller and sector effects larger.
|Date of creation:||Apr 2004|
|Date of revision:|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:4346. 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: ()The email address of this maintainer does not seem to be valid anymore. Please ask to update the entry or send us the correct email address
If references are entirely missing, you can add them using this form.