# Convergence of EMU Equity Portfolios

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## Abstract

This paper demonstrates that, after integration, equity portfolios of countries that joined the European Monetary Union have converged at faster rate than those of NON EMU countries. This outcome can be interpreted as a combination of the convergence of inflation rates and the convergence of investment barriers. On the one hand, the common monetary policy might have driven a stronger comovement in inflation rates, leading to increasingly similar hedging strategies among member countries. On the other hand, exposure to the common currency might have homogenized bilateral investment barriers, thus inducing increasingly similar portfolio allocations among member countries. We find that the comovement of inflation rates has not significantly increased after EMU inception, pointing toward an exclusive role for convergence in investment barriers.

## Keywords

Financial integration EMU Inflation hedging Investment barriers## JEL Classification

F21 F30 F36 G11 G15## Notes

### Acknowledgements

I am indebted to the editor (George Tavlas) and to an anonimous referee for valuable suggestions that improved the paper. I am also grateful to participants in the 2nd FIW Research Conference (Vienna), XVI Spring Meeting of Young Economists (Istanbul) and the CEUS Workshop 2009 (Vallendar) for useful comments. The usual disclaimer applies.

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