, Volume 40, Issue 1, pp 175–196 | Cite as

Portfolio choice of financial investors and European business cycle convergence: a panel analysis for EU countries

Original Paper


We investigate the linkage between business cycle convergence and financial portfolio choice for a panel of 18 EU countries. We construct an index of similarity of financial portfolios which we then put into context with the view that “the financial world” has an impact on business cycles and contributes to business cycle convergence via the consumption-wealth linkage. The model which guides our analysis is the International Asset Pricing Model (IAPM). Portfolios of the 18 EU countries investigated by us turn out to become more similar over time. According to our fixed effects GMM TSLS estimations, similar portfolios contribute to a convergence of business cycles—via a convergence of consumption cycles. This turns out to be especially true for country-pairs that include euro area non-member countries and, thus, have quite different income and wealth structures.


Business cycle convergence Consumption-wealth linkage International asset pricing model Portfolio choice Panel methods Specialisation index 

JEL Classification

E21 F36 G11 O47 


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Copyright information

© Springer Science+Business Media, LLC. 2011

Authors and Affiliations

  1. 1.DIW Berlin, IZA Bonn, and Chair for Macroeconomics, Department of EconomicsUniversity of Duisburg-EssenEssenGermany
  2. 2.University of HohenheimStuttgartGermany

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