Why do investors not like European equities?

A comparison of equity risk premia in the different regions shows investors’ aversion to euro-zone equities. What accounts for it? We examine the following explanations : Weak euro-zone bank share prices ; Greater pessimism over future growth in the euro zone; E xpectation s among equity investors of a rise in long-term interest rates in euros and not in those in other currencies; F ear s of the euro breaking up. The last two explanations - expectation s of a rise in long-term interest rates and fear s of the euro breaking up - seem to be the most compatible with the facts .