Center Rules the Markets

The paper evaluates the impact of the European Economic and Monetary Union (EMU) based on the Fama and French three-factor model. The study reveals that the models based on EMU factors do not have a better explanatory power than the models based on local and international factors, although international factors do not have a significant role. The study also finds that the biggest European stock markets have a tendency to be explained by international factors, when compared to the smallest. Such behavior is being seen as a signal of integration of the largest capital markets. Finally, the study recommends portfolio managers to use the local Fama and French model in the case of small and value stocks and use the local Capital Asset Pricing Model (CAPM) in the case of big and growth stocks.