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
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.