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Title:The Introduction of the Euro and its Effects on Investment Decisions PDF Logo
Authors:Haselmann, Rainer
Helmut, Herwartz
Issue Date:2005
Series/Report no.:Economics working paper / Christian-Albrechts-Universität Kiel, Department of Economics 2005,15
Abstract:In this paper we examine changes on investment decisions induced by the introduction of the Euro. There are two potential sources of portfolio reallocation. First, the introduction of the Euro diminished exchange rate risks within the EMU region, which relieved European investors from currency risk associated with intra-EMU investments. Second, monetary policy has been bundled within one single institution, which increased the correlation of different national stock and bond market returns. We test for structural breaks in the portfolio holdings of German investors and estimate a market model in the latter in order to account for the two described effects. We observe a significant decrease in national and an significant increase in intra-EMU as well as US investments. Therefore, the establishment of the EMU led to a decrease of investment home bias.
Subjects:investment home bias
realized volatility
Euro introduction
JEL:G15
F36
F33
F21
Document Type:Working Paper
Appears in Collections:Economics Working Papers, Department of Economics, CAU Kiel

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