The fair value method recognizes that the most relevant attribute for reporting investments is fair value. Therefore, at reporting dates, investments are adjusted to fair value. Gains and losses are excluded from net income until the investment is sold. This is an attempt to avoid recognition of gains and losses that have not been realized through sale. EXAMPLE As an example of the fair value method, assume that on 1 December 20X5, YZone Manufacturing Limited purchased two investments, both designated as available- for-sale investments. YZone bought 5,000 shares of Gerome Limited, a public company, for $ per share plus $1,200 in broker’s fees. YZone also purchased a. | EUROPEAN CENTRAL BANK WORKING PAPER SERIES NO. 327 I APRIL 2004 DIVERSIFICATION IN EURO AREA STOCK MARKETS COUNTRY VERSUS INDUSTRY by Gerard A. Moerman EUROPEAN CENTRAL BANK WORKING PAPER SERIES NO. 327 I APRIL 2004 DIVERSIFICATION IN EURO AREA STOCK MARKETS COUNTRY VERSUS INDUSTRY1 by Gerard A. Moerman2 In 2004 all publications will carry a motif taken from the 100 banknote. This paper can be downloaded without charge from http or from the Social Science Research Network electronic library at http abstract_id 526990. 1 Part of this paper was written during a short-term visit to the European Central Bank. I would like to thank the General Economic Research Division for their hospitality and for providing a stimulating working author would like to thank the anonymous referee of the ECB working paper series Ronald Mahieu Mathijs van Dijk Simone Manganelli Kees Koedijk Philip Hans Franses Marno Verbeek Ben Tims seminar participants of the Erasmus University Rotterdam conference participants of the Quantitative Methods in Finance 2002 Conference Cairns Australia and seminar participants at the European Central Bank for their valuable opinions expressed herein are those of the author and do not necessarily represent those of the European Cental Bank. 2 European Central Bank and Erasmus University Rotterdam. Contact address Erasmus University Rotterdam Financial Management Department Room F4-3I . Box 1738 3000 DR Rotterdam The Netherlands Phone 31 10 408 2791 fax 31 10 408 9017 Email gmoerman@. European Central Bank 2004 Address Kaiserstrasse 29 60311 Frankfurt am Main Germany Postal address Postfach 16 03 19 60066 Frankfurt am Main Germany Telephone 49 69 1344 0 Internet http Fax 49 69 1344 6000 Telex 411 144 ecb d All rights reserved. Reproduction for educational and noncommercialpurposes is permitted provided that the source is acknowledged. The views expressed in this paper do not necessarily

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