Another indicator to measure the degree of integration in euro area equity markets is the relative importance of sector versus country-based investment strategies. The indicator is derived by calculating and comparing the cross-sector dispersion with the cross-country dispersion of equity returns.
The more integrated the euro area equity market, the greater the benefits of spreading investments across sectors as opposed to country-based equity investment strategies. Our statistics show that the elimination of intra-euro area currency risk has encouraged integration in the sense that the “home bias” in the equity holdings of institutional investors has been significantly reduced.