Country and industry effects in Euroland's equity markets

The euro has eliminated an important source of cross-country variation in equity markets within euroland. This paper investigates country and industry effects in stock returns during the first year of EMU. In contrast to pre-EMU studies, I find that country effects are much less important than they have been in the past, suggesting that monetary union has stimulated the integration of European financial markets. During 1999, the absolute country effect on stock returns averaged 1.36, compared to 2.42 for the average absolute industry effect. The empirical results highlight the importance of choosing a narrow industry classification when measuring industry effects.