Factor reversal in the euro zone stock returns: Evidence from the crisis period

Hsin-I Chou, Jing Zhao and Sandy Suardi

Journal of International Financial Markets, Institutions and Money, 2014, vol. 33, issue C, 28-55

Abstract: The adoption of the euro led to a shift in importance from country to industry effects in euro zone stock returns. For the first time, this paper shows that country effects have regained importance in the recent spate of crises. This euro-wide factor reversal is driven by countries with poor economic fundamentals, comprising Portugal, Italy, Ireland, Greece, and Spain (PIIGS). The results imply that a more traditional country portfolio approach provides greater diversification benefits during crisis periods and the minimum-variance frontier of industry portfolios in PIIGS countries can be improved by adjusting country weights.

Keywords: Euro equity markets; Country effect; Industry effect; Portfolio diversification; Crisis (search for similar items in EconPapers)
JEL-codes: F36 G11 G15 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:33:y:2014:i:c:p:28-55

DOI: 10.1016/j.intfin.2014.07.007

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