EC economic and monetary integration: Implications for European equity investors

Robert Johnson, John Lindvall and Luc Soenen

European Management Journal, 1994, vol. 12, issue 1, 94-101

Abstract: Robert Johnson, John Lindvall and Luc Soenen investigate the impact of continued economic and monetary integration within the European Community on the risk/return characteristics of its equity markets. Equity markets in different EC countries are becoming more similar in terms of risk and return. However, the risk of investing in EC equity markets is not decreasing over time. On the other hand, we find that currency risk has decreased and that the compounding effect of exchange rate risk magnifying stock market risk is decreasing. Despite the greater similarity of the different EC stock and currency markets in terms of risk and return characteristics, investors from EC countries can significantly reduce their risk by diversifying their equity investments across the range of EC country stock markets.

Date: 1994
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