Effects of the financial crisis on the european integration process: relevance of exchange rate, inflation and domestic risks

Abstract

The benefits of international diversification through financial integration are known to all investors, and manage their international portfolios is essential to know the risk factors that help explain the differences between the returns on financial assets in their own country and around the world. In this context, the financial crisis in 2008 has challenged all the concepts and theories in asset pricing. The aim of this paper is to quantify the influence of these events in the assessment considering the inflation, exchange rate and domestic risks. The economic impacts of these risk sources indicate that the risk of under/overestimation of European portfolios is much higher with the financial crisis. In addition, the measures taken in Europe to alleviate the effects of this crisis has been insufficient. The measures taken in Europe to alleviate the effects of this crisis has been insufficient.