Impact of Euro Adoption on Czech Investors
|Author:||PhDr. Tomáš Honěk|
|Year:||2007 - winter|
|Leaders:|| † prof. Ing. Michal Mejstřík CSc.
|Consultants:|| prof. Ing. Oldřich Dědek CSc.
|Work type:|| Doctoral
|Awards and prizes:|
|Abstract:||The Thesis evaluates the impact of Euro adoption in the Czech Republic on the domestic investors. First of all, the author surveys the existing research on Euro adoption in the current Euro-zone countries. The author finds out that although the exchange rate with euro may disappear as an financial asset, it will in turn expand the investment opportunity set of the domestic investors. The current research indicates that substantial home bias exists on each national market. The creation of the European Monetary Union lead to a significant decrease of the home bias among the member states. It can be expected that the Czech investors will benefit
from the expansion of their investable universe.
The author then estimates the conditional International Asset Pricing Model on a set of equity and currency assets. Quasi-Maximum Likelihood method is used in order to estimate the multivariate GARCH-in-Mean model. The model allows for a simultaneous estimation of the set of pricing restrictions along with the conditional covariance matrix of returns. The author concludes that the Euro risk is indeed priced in and that it commands a negative risk premium. The Czech investors are willing to forgo a significant share of their total risk premium in order to hold Eurodenominated assets and to diversify internationally. It turns out that the elimination of the currency risk with respect to the Euro will allow the Czech investors to diversify more affectively and at a lower cost. In this respect are the Czech investors going to benefit from the Euro adoption.
|Downloadable:|| Rigorous thesis