Sectoral Equity Returns In The Euro Region: Is There Any Room For Reducing The Portfolio Risk?

The economic integration among Euro members has important consequences for the factors driving asset pricing and asset trading within the financial markets. In particular, since the start of the Euro, cross-country equity index correlations in the region have showed upward trends and domestic investors have allocated their portfolios mostly inside of the region. This paper studies the impact of these recent structural changes on the Euro-wide sectoral equity indices. The authors modeled the return and volatility of the Euro sector equity indices between years 1992 and 2007. They documented that aggregate world equity or global sector equity indices have not been affecting the sector equity indices since the beginning of the Euro.