Working Paper: CEPR ID: DP3086
Authors: Kpate Adjaout; Jean-Pierre Danthine
Abstract: Diversification opportunities in Euroland appear to have improved significantly since the advent of the euro, thus invalidating the prospects identified in the last years of the convergence-to-EMU period. We identify low frequency movements in the time series of return dispersions suggestive of cycles and long swings in return correlations. The most recent post-euro period is clearly associated with an important upswing with return dispersions exceeding for the first time their peaks of the early nineties.
Keywords: Euro; Portfolio Diversification; Return Dispersion
JEL Codes: F30; G11; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| economic and monetary integration (F36) | increase in return correlations (C10) |
| increase in return correlations (C10) | reduced diversification opportunities (L25) |
| introduction of euro (F36) | decrease in return correlations (C10) |
| decrease in return correlations (C10) | improved diversification opportunities (G11) |
| increase in return dispersions (G19) | better diversification opportunities (G11) |