Financial integration, international portfolio choice and the European Monetary Union

Roberto A. De Santis () and Bruno Gérard ()
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Bruno Gérard: Norwegian School of Management BI, Elias Smiths vei 18, Box 580 N-1302 Sandvika, Norway., http://www.bi.no/BI-Startpage2/

No 626, Working Paper Series from European Central Bank

Abstract: We investigate the determinants of bilateral international equity and bond portfolio reallocation across a large cross section of countries over the 1997 to 2001 period. We first argue that financial integration is not a global phenomenon, as equity and bond home biases declined significantly only among European countries, Australia, New Zealand and Singapore. Then, we show that the European Economic and Monetary Union (EMU) eased the access to the equity market and, to a larger extent, the bond market; thereby, enhancing regional financial integration in the euro area. Beside the effect of the EMU, the strongest determinants of the changes in portfolio weights are expected diversification benefits and the initial degree of underweight. JEL Classification: C13; C21; F37; G11.

Keywords: Home bias; risk diversification; international portfolio weights; EMU. (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec, nep-fin, nep-fmk and nep-sea
Date: 2006-05
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