, 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

  • Ansgar Belke
  • Jennifer Schneider
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 


  1. Artis MJ (2003) Is there a European business cycle? CESifo Working Paper, 1053, CESifo, MunichGoogle Scholar
  2. Baum CF (2006) An introduction to modern econometrics using stata. Stata Press, College StationGoogle Scholar
  3. Baxter M, King RG (1999) Measuring business cycles: approximate band-pass filters for economic time series. Rev Econ Stat 81:575–593CrossRefGoogle Scholar
  4. Belke A, Heine JM (2006) Specialisation patterns and the synchronicity of regional employment cycles in Europe. Int Econ Econ Policy 3:91–104CrossRefGoogle Scholar
  5. Belke A, Heine JM (2007) On the endogeneity of an exogenous OCA-criterion: specialisation and the correlation of regional business cycles in Europe. Empirica 34:15–44CrossRefGoogle Scholar
  6. Bluethgen R, Hackethal A, Jansen C, Meyer S (2008) The cost of home bias: empirical evidence and implications for stock market participation. Working Paper, Oestrich-WinkelGoogle Scholar
  7. Brooks R, Del Negro M (2004) The rise in comovement across national stock markets: market integration or IT bubble? J Empir Finance 11:659–680CrossRefGoogle Scholar
  8. Bundesverband deutscher Banken (2004) Das Sparverhalten in Europa ändert sich nur langsam. Date of retrieval: 27 May 2009
  9. Clark TE, van Wincoop E (2001) Borders and business cycles. J Int Econ 55:59–85CrossRefGoogle Scholar
  10. Cleveland WS (1979) Robust locally weighted regression and smoothing scatterplots. J Am Stat Assoc 74:829–836CrossRefGoogle Scholar
  11. de Santis G, Gérard B (2006) Financial integration, international portfolio choice and the European monetary union. ECB Working Paper Series, 626. Frankfurt a.MGoogle Scholar
  12. Greene WH (2003) Econometric analysis. Pearson Education, Upper Saddle RiverGoogle Scholar
  13. Gros D, Hefeker C (2004) Asymmetric transmission of monetary policy: what should the ECB do if one size does not fit all? In: Sinn H, Widgrén M, Köthenbürger M (eds) European monetary integration. MIT Press, Cambridge, pp 45–63Google Scholar
  14. Hill RC, Griffiths WE, Lim GC (2008) Principles of econometrics. Wiley, HobokenGoogle Scholar
  15. Hodrick RJ, Prescott EC (1997) Postwar U.S. business cycles: an empirical investigation. Journal of Money, Credit and Banking 29:1–16CrossRefGoogle Scholar
  16. Kishor KN (2007) Does consumption respond more to housing wealth than to financial market wealth? If so, why? J Real Estate Finance Econ 35:427–448Google Scholar
  17. Lapp S (2001) Internationale Diversifikation in den Portfolios deutscher Kapitalanleger: Theorie und Empirie. Springer, BerlinGoogle Scholar
  18. Ludwig A, Sløk T (2002) The impact of changes in stock prices and house prices on consumption in OECD countries. IMF Working Paper, 01/2002. Washington, DCGoogle Scholar
  19. Mundell RA (1961) A theory of optimal currency areas. Am Econ Rev 51:657–665Google Scholar
  20. Pesaran HM (2007) A simple panel unit root test in the presence of cross section dependence. J Appl Econ 22:265–312CrossRefGoogle Scholar
  21. Ravn MO, Uhlig H (2002) On adjusting the Hodrick-Prescott filter for the frequency of observations. Rev Econ Stat 84:371–376CrossRefGoogle Scholar
  22. Schneider J (2011) European business cycle convergence: portfolio similarity and a declining home bias of private investors. Mimeo, University of Hohenheim, Chair for International Economics, StuttgartGoogle Scholar
  23. Sharpe WF (1964) Capital asset prices: a theory of market equilibrium under conditions of risk. J Finance 19:425–442Google Scholar
  24. Slacalek J (2006) What drives personal consumption?: the role of housing and financial wealth. DIW Discussion Paper, 647, BerlinGoogle Scholar
  25. Solnik BH (1974) An equilibrium model of the international capital market. J Econ Theory 8:500–524CrossRefGoogle Scholar
  26. Sousa RM (2009) Wealth effects on consumption: evidence from the euro area. ECB Working Paper, 1050. Frankfurt a.MGoogle Scholar
  27. StataCorp (2007) Stata statistical software, release 10: longitudinal/panel data. Stata Press, College StationGoogle Scholar
  28. Uni Credit Group (2007) Global trends in the dynamic of household wealth and debt. Date of retrieval: 2007-06-19.
  29. von Nietzsch R, Stotz O (2006) Zu welchen Renditeeinbußen führt der Home Bias? Finanz Betrieb 8:106–113Google Scholar
  30. Wooldridge JM (2002) Econometric analysis of cross section and panel data. The MIT Press, CambridgeGoogle Scholar
  31. Zydra M (2008) Alles auf die Deutschland-Karte: Bundesbürger sparen vor allem national—was sehr riskant ist. Süddeutsche Zeitung, p 27Google Scholar

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

Personalised recommendations