United we stand divided we fall: The time-varying factors driving European Union stock returns

Publication Name

Journal of International Financial Markets, Institutions and Money


Much of the literature on the economic benefits of the European Union (EU) has focused on trade liberalization. From a portfolio management perspective, this paper employs a structural vector autoregressive model of the shift-share (SS) decomposition to demonstrate the effects of regional, country, industry, and national industry factors on stock returns. Based on post-EU data for 10 sectors and 19 countries, the relative importance of these factors driving Euro stock returns is found to be time-varying due to financial integration, the global financial crisis, the Euro debt crisis, and Brexit. We find: (1) the EU regional factor dominates the behavior of all EU and non-EU members stock returns; (2) the crises decrease both country and industry factors; (3) the crises have led to greater importance in regional factor characterizing country stock returns especially amongst countries which are more integrated with the EU; (4) national industry factor is more pertinent than the other factors and provides a portfolio's risk reduction strategy; and (5) the regional factor dominantly explains UK stock returns variation thus generating concerns over Brexit.

Open Access Status

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Funding Sponsor

Ministry of Science and Technology, Taiwan



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