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Are there still portfolio diversification opportunities within the EMU area?
Södertörn University College, School of Business Studies.
2005 (English)Independent thesis Advanced level (degree of Magister), 10 points / 15 hpStudent thesis
Abstract [en]

The purpose of this paper is to investigate the impact of the EMU on the long-run covariance between the member countries stock indices returns, to see whether country diversification opportunities have changed or not. The degree to which investors are able to reduce risk by diversifying their portfolio depends on the correlation between assets. Investors should dislike an increase in correlation between returns. Therefore it is of great interest to investigate whether the covariance between the EMU countries has increased or not. I use GARCH (1.1) covariance model for estimation, with the extension that I allow the slope to differ in the regression equation. A dummy variable is included to find any regime shift in the data. The exchange rate of the EMU countries were fixed in January 1999 and therefore the dummy takes the value one from 1999-2004 and zero otherwise. I find that the long-run covariance in EMU area has increased making it less attractive to diversify portfolios within the area. The covariance’s between countries where the control countries is included (Sweden and Switzerland) has also been affected of the euro introduction. But still I find evidence of a high integrated market even before the euro introduction, indicating that EU, rather than EMU, has had the greatest impact on member countries markets. Maybe the higher level of integration also is due to trade linkage between the countries resulting from EU and EMU.

Place, publisher, year, edition, pages
Huddinge: Institutionen för ekonomi och företagande , 2005. , 54 p.
Keyword [en]
Economics
Keyword [sv]
Nationalekonomi, Finansiell ekonomi, portföljteori, GARCH 1.1
National Category
Economics
Identifiers
URN: urn:nbn:se:sh:diva-236OAI: oai:DiVA.org:sh-236DiVA: diva2:15920
Uppsok
samhälle/juridik
Examiners
Available from: 2005-06-22 Created: 2005-06-22

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CiteExportLink to record
Permanent link

Direct link
Cite
Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf