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Cash Flows and Discount Rates, Industry and Country Effects and Co-Movement in Stock Returns

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  • John Ammer
  • Jon Wongswan

Abstract

We apply the Campbell decomposition to industry-by-country, national, global industry, and world stock index returns using 1995-2003 data. World, global industry, and country factors are all important for each of the two key components of stock returns: news about future dividends and news about future discount rates. Furthermore, the world component of future discount rates is more important than the idiosyncratic component, while the reverse is true for news about future dividends. Our results are broadly consistent with co-movement in future discount rates arising from perceptions of common elements of risk in international equity markets. Copyright 2007, The Eastern Finance Association.

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Bibliographic Info

Article provided by Eastern Finance Association in its journal Financial Review.

Volume (Year): 42 (2007)
Issue (Month): 2 (05)
Pages: 211-226

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Handle: RePEc:bla:finrev:v:42:y:2007:i:2:p:211-226

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Web page: http://www.easternfinance.org/
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  1. Forbes, Kristin & Chinn, Menzie, 2003. "A Decomposition of Global Linkages in Financial Markets over Time," Santa Cruz Department of Economics, Working Paper Series qt6z74b3x7, Department of Economics, UC Santa Cruz.
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  3. Ammer, John & Mei, Jianping, 1996. " Measuring International Economic Linkages with Stock Market Data," Journal of Finance, American Finance Association, vol. 51(5), pages 1743-63, December.
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  7. Ammer, John & Campbell, John, 1993. "What Moves the Stock and Bond Markets? A Variance Decomposition for Long-Term Asset Returns," Scholarly Articles 3382857, Harvard University Department of Economics.
  8. Griffin, John M. & Andrew Karolyi, G., 1998. "Another look at the role of the industrial structure of markets for international diversification strategies," Journal of Financial Economics, Elsevier, vol. 50(3), pages 351-373, December.
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  10. Campbell, John Y & Hamao, Yasushi, 1992. " Predictable Stock Returns in the United States and Japan: A Study of Long-Term Capital Market Integration," Journal of Finance, American Finance Association, vol. 47(1), pages 43-69, March.
  11. Robin Brooks & Marco Del Negro, 2003. "Firm-Level Evidenceon International Stock Market Comovement," IMF Working Papers 03/55, International Monetary Fund.
  12. Luis Catão & Allan Timmermann, 2003. "Country and Industry Dynamics in Stock Returns," IMF Working Papers 03/52, International Monetary Fund.
  13. Ferson, Wayne E & Harvey, Campbell R, 1991. "The Variation of Economic Risk Premiums," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 385-415, April.
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Cited by:
  1. Bredin, Don & Hyde, Stuart, 2011. "Investigating sources of unanticipated exposure in industry stock returns," Journal of Banking & Finance, Elsevier, vol. 35(5), pages 1128-1142, May.

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