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Portfolio performance and the Euro: Prospects for new potential EMU members

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  • Haselmann, Rainer
  • Herwartz, Helmut

Abstract

Entering the EMU removes currency risk for assets originating in the Euro area while diversification opportunities are likely reduced. Taking the perspective of an investor in one of the 12 countries that joined the EU in 2004-2007, we contrast actual optimal composition of international equity holdings against two artificial scenarios: costless hedging against exchange rate risk and presuming the local market to be part of the EMU. State specific optimal portfolios are determined from realized covariances for the period 2000-2006. Optimized risk is found smaller under currency unification and implied Sharp ratios signal significant benefits of EMU participation.

Suggested Citation

  • Haselmann, Rainer & Herwartz, Helmut, 2008. "Portfolio performance and the Euro: Prospects for new potential EMU members," Journal of International Money and Finance, Elsevier, vol. 27(2), pages 314-330, March.
    • Handle: RePEc:eee:jimfin:v:27:y:2008:i:2:p:314-330
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    2. repec:kap:iaecre:v:17:y:2011:i:2:p:119-133 is not listed on IDEAS
    3. Maher Asal, 2011. "The Impact of Euro on Sectoral Equity Returns and Portfolio Risk," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 17(2), pages 119-133, May.

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