The Impact of the EMUon the Structure of European Equity Returns: An Empirical Analysis of the First 21 Months

Thomas Kraus

No 2001/084, IMF Working Papers from International Monetary Fund

Abstract: Using symmetric data sets of 92 weekly return observations before and after the introduction of the euro, the paper analyzes the impact of the new currency on the return structure of equity markets in the European Monetary Union. Variance decompositions, cluster analyses, and principle component analyses are used to explore the changes in the structural relations. European industry factors are found to have dramatically increased in importance with the launch of the single currency, and a new 'country-size' factor in European stock returns is detected. Furthermore, inner-European correlations are documented to have been reduced sharply with the start of the monetary union.

Keywords: WP; industry factor; EMU country; country factor; market capitalization; factor portfolio; Euro; EMU; equity markets; correlations; industry sectors; factor models; Dow Jones Euro STOXX® index; introduction of the Euro; Euro introduction; start of the EMU; Stock markets; Stocks; Currencies; Industrial sector; Europe; Global (search for similar items in EconPapers)
Pages: 40
Date: 2001-06-01
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Citations: View citations in EconPapers (7)

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