The Impact of the EMUon the Structure of European Equity Returns

Using symmetric data sets of 92 weekly return observations before and after the introduction of the euro, the paper analyzes the impact of the new currency on the return structure of equity markets in the European Monetary Union. Variance decompositions, cluster analyses, and principle component analyses are used to explore the changes in the structural relations. European industry factors are found to have dramatically increased in importance with the launch of the single currency, and a new ''country-size'' factor in European stock returns is detected. Furthermore, inner-European correlations are documented to have been reduced sharply with the start of the monetary union.Euro;correlations, correlation, stock markets, equity markets, stock market, factor analysis, stock returns, explanatory power, financial services, equity market, statistic, cluster analyses, currency risk, cluster analysis, time series, hierarchical clustering, international capital markets, stock market indices, financial markets, international financial markets, derivative, stock market capitalization, stock market crashes, derivative markets, covariance, correlation analyses, international capital, forecasting, normal distribution, world stock market, stock market index, currency regime