The Impact of Globalization on the Equity Cost of Capital

Gikas Hardouvelis (), Richard Priestley () and Dimitrios Malliaropoulos
Authors registered in the RePEc Author Service: Dimitrios Malliaropulos

No 4346, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: 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.

Keywords: Globalization; Cost of equity; Convergence; Integration (search for similar items in EconPapers)
JEL-codes: G11 G12 G15 (search for similar items in EconPapers)
Date: 2004-04
New Economics Papers: this item is included in nep-cfn and nep-ifn
References: Add references at CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
https://cepr.org/publications/DP4346 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:4346

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP4346

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().