From Home Bias To Euro Bias: Disentangling The Effects Of Monetary Union On The European Financial Markets

Following the launch of the Euro in 1999, integration among Euro area financial markets increased considerably. As a result, portfolio home bias declined across the European -financial markets. However, greater market integration has generated a new bias: portfolio Euro bias, a situation where Euro investors tend to hold large proportion of assets issued within the Euro region. The first part of this paper presents an empirical analysis of the economic factors at play behind the switch from home bias to Euro bias. The second part of the paper goes deeper into the effects of Euro bias on Euro area bond and equity markets.