The Introduction of the Euro and its Effects on Investment Decisions

45 Pages Posted: 23 Feb 2006

See all articles by Rainer F. H. Haselmann

Rainer F. H. Haselmann

Goethe University Frankfurt - Faculty of Economics and Business Administration; Leibniz Institute for Financial Research SAFE

Helmut Herwartz

University of Kiel - Institute of Statistics and Econometrics

Date Written: November 2005

Abstract

In this paper we examine changes on investment decisions induced by the introduction of the Euro. There are two potential sources of portfolio reallocation. First, exchange rate risk diminished within the EMU region. Second, monetary policy has been bundled within one institution. We test for structural breaks in the portfolio holdings of German investors and estimate a market model in order to account for the two described effects. We observe a significant decrease in national and significant increase in intra-EMU as well as US investments. Therefore, the establishment of the EMU led to a decrease of investment home bias.

Keywords: investment home bias, realized volatility, Euro introduction

JEL Classification: F21, F33, F36, G15

Suggested Citation

Haselmann, Rainer F. H. and Herwartz, Helmut, The Introduction of the Euro and its Effects on Investment Decisions (November 2005). Available at SSRN: https://ssrn.com/abstract=883673 or http://dx.doi.org/10.2139/ssrn.883673

Rainer F. H. Haselmann

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Mertonstrasse 17-25
Frankfurt am Main, D-60325
Germany

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Helmut Herwartz (Contact Author)

University of Kiel - Institute of Statistics and Econometrics ( email )

Olshausensrabe 40-60
D-24118 Kiel
Germany

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