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The Importance of Industry and Country Effects in the EMU Equity Markets
Author(s) -
Ferreira Miguel Almeida,
Ferreira Miguel Ângelo
Publication year - 2006
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/j.1354-7798.2006.00324.x
Subject(s) - economics , equity (law) , dominance (genetics) , stock (firearms) , empirical evidence , monetary economics , mechanical engineering , biochemistry , chemistry , philosophy , epistemology , political science , law , gene , engineering
Most empirical studies find that country effects are larger than industry effects in stock returns, although industry effects have gained in importance recently. Our results support the dominance of country effects relative to industry and common effects in the EMU equity markets in the 1975–2001 period. However, there is an increasing importance of industry effect relative to country effect in the 1990s. In fact, industry effects is similar in magnitude to country effect in the post‐euro period. The evolution of the ratio of country to industry effect is explained by the decrease in the cross‐sectional variance of interest rate movements across EMU countries. Thus, there is evidence that nominal convergence has reduced the differences between national equity markets.