Interest rate sensitivity of the European stock markets before and after the euro introduction

Introduction of the euro altered corporate financing markets for the euro zone firms in an unprecedented way. Since 1999, firms from the euro zone countries are able to raise funds in their home currency in the large common currency market. I find that while stock returns in most countries in the We...

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Bibliographic Details
Published in:Journal of international financial markets, institutions & money institutions & money, 2011-12, Vol.21 (5), p.811-831
Main Author: Timo, Korkeamäki
Format: Article
Language:English
Subjects:
Bond market
Capital market
Currencies
Euro
Europe
Eurozone
Foreign exchange rates
Interest rate risk
Interest rate risk Euro
Interest rates
Risk
Securities markets
Stock returns
Studies
Western Europe
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Summary:Introduction of the euro altered corporate financing markets for the euro zone firms in an unprecedented way. Since 1999, firms from the euro zone countries are able to raise funds in their home currency in the large common currency market. I find that while stock returns in most countries in the Western Europe were negatively correlated with interest rate changes prior to the euro, that correlation has disappeared since 1999. My results reveal that recent growth in European corporate bond markets has played an important role in enabling firms to better manage their interest rate risk.
ISSN:1042-4431
1873-0612
DOI:10.1016/j.intfin.2011.06.005