Mary Pieterse-Bloem
| Date of PhD defense: | 13 May 2011 |
| Title of thesis: | The Effect of EMU on Bond Market Integration and Investor Portfolio Allocations: An Empirical Study of Factor Decomposition and Diversification in European Bond Returns |
| ISBN: | 978 90 5668 279 8 |
| Promotor: | Prof.dr. Sylvester Eijffinger Prof.dr. Dick van Wensveen |
Abstract:
Starting point of the thesis are macroeconomic theories on international financial integration and via market indicative research into the effect of EMU on bond markets culminates in an empirical analysis more typical for financial economic studies of asset returns. For the empirical research two complementary econometric methods are used: the standard decomposition model of Heston and Rouwenhorst (1994) and mean-variance spanning and efficiency tests following Huberman and Kandel (1987) and De Roon and Nijman (2001). The novelty in this research is that these methods have been developed for the study of equity returns but are here applied to bond returns. Crucial for the study is a unique and comprehensive data set comprising bond returns from the European markets covering a period of nearly two decades. The central idea that is researched is that with better integrated markets under EMU, country effects should decline. Since it can be expected that the national economies of EMU countries will integrate further, the determination of the course of the importance of country effects is seen as a measure of financial and economic integration. Furthermore, if the a priori predicted industry specialization in countries takes place under EMU, the importance of industry effects should rise. The results from the empirical analysis are especially noteworthy because they show that neither has in fact taken place. Further to these results, important insights are gained on the efficient and optimal performance of bond portfolios allocated on either a country or an industry basis, which are relevant to the practice of fixed income fund management. Last but not least, through the special prism of the bond markets adopted in this thesis, a novel perspective emerges on the trace of the recent financial crisis in Europe.
Global / English