The effect of the Euro on country versus industry portfolio diversification

Thomas Flavin

Economics Department Working Paper Series from Department of Economics, National University of Ireland - Maynooth

Abstract: We examine the relative benefits of industrial versus geographical diversification in the Euro zone before and after the introduction of the common currency. A priori, one may expect that increased stock market correlation would precipitate a move from geographical towards industrial diversification. We employ the empirical model of Heston and Rouwenhorst but show that adopting a panel data approach is a more efficient estimation method. We find evidence of a shift in factor importance; from country to industry. However, this is not exclusive to the Euro zone but is also present for non-EMU European countries. Therefore, fund managers should pursue industrial rather than geographical diversification strategies.

Keywords: Portfolio diversification; industry and country effects; Euro (search for similar items in EconPapers)
JEL-codes: F36 G11 G15 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2004-10
New Economics Papers: this item is included in nep-eec and nep-fin
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (42)

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Journal Article: The effect of the Euro on country versus industry portfolio diversification (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:may:mayecw:n1411004

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