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Centre Rules the Markets

Author

Listed:
  • Alves, Paulo
  • Ferreira, Miguel

Abstract

In this paper we evaluate the impact of the European Monetary Union based on the Fama and French three-factor model. Our research shows that the models based on EMU factors present worse explanatory power than models based on local and international factors, although international factors do not have a significant role. We also find that there is a tendency for the biggest European stock markets to be explained by international factors, contrarily to the smallest. We understand that behaviour as being a signal of integration of the largest capital markets. Finally, we recommend portfolio managers to use the local Fama and French model in the case of small and value stocks and use the local Capital Asset Pricing model in the case of big and growth stocks.

Suggested Citation

  • Alves, Paulo & Ferreira, Miguel, 2008. "Centre Rules the Markets," MPRA Paper 52779, University Library of Munich, Germany, revised 2008.
    • Handle: RePEc:pra:mprapa:52779
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    References listed on IDEAS

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    More about this item

    Keywords

    FFM; CAPM;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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