European exchanges, investors behaviour and asset allocation criteria: country approach vs industry approach

The european exchange industry it’s been involved in an integration process since the end of the ‘90’s. At a first time different attempts to join togheter two or more stock-exchanges failed, but in the last years the M&A integration activity become stronger and many cross-border agreement has been reached. Nyse-Euronext, Omx and, recently, LSE-Borsa Italiana show how the structure of the european exchange industry is going forward a national-based system, adopting an international perspective. In this changing enviroment, the aim of this paper is to investigate the relationship between stock-exchanges integration and investor behaviour. The analysis is based on the assumption that the investors’ asset allocation strategies are linked to the structure of the securities market. In particular, the gradual reduction of the market’s (geographical) segmentation, by altering the operators’ investment horizons and affecting portfolio composition, may have modified the diversification criteria, resulting in a shift of focus on Industry – rather than Country – based segmentation (i.e. based on the industry sectors rather than the nationality of the issuer of the stocks). By applying a cluster analysis and a principal component analisys of the weekly index yields of the principal European stock exchanges the authors intend to show how the asset allocation behaviour of European investors has changed over the years, while at the same time assessing the effects of integration on the performance of the European stock markets.