0000000000643163
AUTHOR
Helmut Herwartz
showing 2 related works from this author
Portfolio performance and the Euro: Prospects for new potential EMU members
2008
Abstract Entering the EMU removes currency risk for assets originating in the Euro area while diversification opportunities are likely reduced. Taking the perspective of an investor in one of the 12 countries that joined the EU in 2004–2007, we contrast actual optimal composition of international equity holdings against two artificial scenarios: costless hedging against exchange rate risk and presuming the local market to be part of the EMU. State specific optimal portfolios are determined from realized covariances for the period 2000–2006. Optimized risk is found smaller under currency unification and implied Sharp ratios signal significant benefits of EMU participation.
The introduction of the Euro and its effects on portfolio decisions
2010
Abstract Examining investment behavior related to the Euro introduction, we address the relevance of different investment determinants. With the advent of the currency union two potential sources of portfolio reallocation can be distinguished: First, the diminishment of exchange rate risk and transaction costs within the EMU. Second, the increase of correlation of EMU returns so that diversification benefits decreased. We test for structural breaks in the holdings of German investors and estimate a market model to account for the two effects. A significant decrease in national and an increase in EMU and rest-of-the-world investments can be observed. Comparing the observed holdings with benc…