World and regional factors in stock market returns
AbstractPurpose – This paper aims to test the hypothesis that the national stock market returns are driven by a world factor, regional factors and idiosyncratic factors, and to measure the importance of each factor. Design/methodology/approach – The state-space model is applied to describe the sample returns and estimate a world factor, regional factors and idiosyncratic factors by Kalman filtering. Weekly and daily returns calculated from MSCI country indexes from January 1988 to December 2004 of 11 national stock markets in four regions, i.e. North America (the USA and Canada), South America (Brazil, Mexico and Chile), Europe (the UK, Germany and France), and Asia (Japan, Hong Kong, and Singapore) are used. Findings – The results support the hypothesis that national market returns are driven by a world factor, regional factors and idiosyncratic factors. National markets do not always respond mainly to the world factor; regional factors and idiosyncratic factors play important roles as well. They also respond to world news at a slower rate than regional news. Research limitations/implications – This paper does not identify the source or origins of news directly but the factors are assumed as random variables and are estimated under certain strict assumptions. Originality/value – This paper applies Kalman filtering to estimate a world factor and regional factors and test the importance of each factor directly, an extension of previous studies that mostly showed strong independence among markets.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Emerald Group Publishing in its journal International Journal of Managerial Finance.
Volume (Year): 5 (2009)
Issue (Month): 2 (April)
Contact details of provider:
Web page: http://www.emeraldinsight.com
Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statistics
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Harris).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.