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The European single currency and world equity markets

Author: Gerard, Bruno ; Santis, Giorgio de ; Hillion, PierreINSEAD Area: Finance In: European capital markets with a single currency - Dermine, Jean;Hillion, Pierre - 1999 - INSEAD Book Language: EnglishDescription: p. 205-235.Type of document: INSEAD ChapterNote: Please ask the Library for this chapter.Abstract: The main objective of this study is to analyse the impact on world financial markets of the adoption of a single European currency and the subsequent elimination of intra-European currency risk. We estimate the EMU and non-EMU components of aggregate currency risk usig a conditional version of the international CAPM of Edler and Dumas (1983). Our results indicate that investors are rewarded for their exposure to both sources of exchange risk. The premium for EMU risk is mostly positive, but has decreased over the year. The non-EMU risk is conistently negative and is much larger, in absolute value, than its EMU counterpart. This suggests that the adoption of a single currency is likely to have a limited impact. European financial markets will still be exposed to the large and dominant impact of the non-EMU currency risk
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The main objective of this study is to analyse the impact on world financial markets of the adoption of a single European currency and the subsequent elimination of intra-European currency risk. We estimate the EMU and non-EMU components of aggregate currency risk usig a conditional version of the international CAPM of Edler and Dumas (1983). Our results indicate that investors are rewarded for their exposure to both sources of exchange risk. The premium for EMU risk is mostly positive, but has decreased over the year. The non-EMU risk is conistently negative and is much larger, in absolute value, than its EMU counterpart. This suggests that the adoption of a single currency is likely to have a limited impact. European financial markets will still be exposed to the large and dominant impact of the non-EMU currency risk

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