The impact of EMU on the equity cost of capital
Authors: G. Hardouvelis, D. Malliaropoulos and R. Priestley
Journal: Journal of International Money and Finance, 2007, 26:2, pp.305-327
***ranked 69th among the 300 most cited papers in the area of Finance
Abstract:
This paper shows that during the 1990s the process of gradual economic and monetary integration, which eventually led to EMU, also resulted in a reduction in the equity cost of capital. A similar reduction was not present in the three EU countries which chose not to enter the Eurozone. There was also a strong convergence in the cost of equity across the different countries within a given industrial sector, but little convergence across the different sectors of a given EMU country. An implication for portfolio management is that country effects are becoming less important and sectoral effects are becoming more important.
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