The impact of EMU on the equity cost of capital

The impact of EMU on the equity cost of capital
Authors: G. Hardouvelis, D. Malliaropoulos and R. Priestley
Journal: Journal of Business, 2006, 79:1, pp 365-392
***ranked 69th among the 300 most cited papers in the area of Finance


The launch of the single currency in Europe in January 1999 was preceded by a period of regulatory harmonization, convergence in bond yields and inflation rates, and strict fiscal policy across the Eurozone countries. We examine whether the 1990s also were characterized by increased stock market integration. The results indicate that, as forward interest differentials benchmarked against Germany and inflation differentials benchmarked against the three best performing states shrank toward zero, stock markets converged toward full integration. The United Kingdom, a country that chose not to enter the Eurozone, shows no such increase in stock market integration.

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