Realized portfolio selection in the euro area.

A new approach to mean-variance e ¢ cient portfolio selection is in-troduced. The method is based on realized regression theory and the regression based portfolio selection approach of Britten-Jones (1999), yielding a conditional version of the Britten-Jones (1999) method. Ap-plication to euro area stock markets diversi\u85cation, di¤erently from other standard approaches, actually yields a balanced and stable allo-cation of wealth, free from the problem of corner solutions, suggesting that diversi\u85cation among euro area stock markets is still be feasi-ble and desirable. Evidence that the monetary union may have had a much less important impact on the integration of euro area equity markets, as well as that the latter is still in progress, is provided. Key words: asset allocation, portfolio choice, stock market inte-gration, international diversi\u85cation, euro area, realized regression