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Firm-level evidence on international stock market comovement

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  • Brooks, Robin
  • Del Negro, Marco

Abstract

We explore the link between international stock market comovement and the degree to which firms operate globally. Using stock returns and balance sheet data for companies in 20 countries, we estimate a factor model that decomposes stock returns into global, country-specific and industry-specific shocks. We find a large and highly significant link : on average, a firm raising its international sales by 10 percent raises the exposure of its stock return to global shocks by 2 percent and reduces its exposure to countryspecific shocks by 1.5 percent. This link has grown stronger since the mid-1980s. --

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Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2005,11.

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Date of creation: 2005
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Handle: RePEc:zbw:bubdp1:3370

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Keywords: Diversification; risk; international financial markets; industrial structure;

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Cited by:
  1. Nikolaos L. Hourvouliades, 2009. "International Portfolio Diversification: Evidence from European Emerging Markets," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 55-78.
  2. Lieven Moor & Piet Sercu, 2010. "Country v sector effects in equity returns and the roles of geographical and firm-size coverage," Small Business Economics, Springer, Springer, vol. 35(4), pages 433-448, November.
  3. Lupu, Radu, 2011. "Shock transmission among the European Stock markets - Conferinta CRESTERE ECONOMICA SI SUSTENABILITATE SOCIALA. PROVOCARI SI PERSPECTIVE EUROPENE>," Institute for Economic Forecasting Conference Proceedings 101101, Institute for Economic Forecasting.
  4. Cerqueti, Roy & Costantini, Mauro, 2011. "Testing for rational bubbles in the presence of structural breaks: Evidence from nonstationary panels," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(10), pages 2598-2605, October.
  5. Cai, Fang & Warnock, Francis E., 2012. "Foreign exposure through domestic equities," Finance Research Letters, Elsevier, Elsevier, vol. 9(1), pages 8-20.
  6. Rodrigo Aranda & Patricio Jaramillo, 2008. "Nonlinear Dynamic in the Chilean Stock Market: Evidence from Returns and Trading Volume," Working Papers Central Bank of Chile, Central Bank of Chile 463, Central Bank of Chile.
  7. Cai, Fang & Warnock, Francis E., 2005. "International diversification at home and abroad," Discussion Paper Series 1: Economic Studies 2005,06, Deutsche Bundesbank, Research Centre.
  8. Jian Zhou & Yanmin Gao, 2012. "Tail Dependence in International Real Estate Securities Markets," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 45(1), pages 128-151, June.
  9. Rua, António & Nunes, Luís C., 2009. "International comovement of stock market returns: A wavelet analysis," Journal of Empirical Finance, Elsevier, Elsevier, vol. 16(4), pages 632-639, September.
  10. Fang Cai & Francis E. Warnock, 2006. "International Diversification at Home and Abroad," NBER Working Papers 12220, National Bureau of Economic Research, Inc.
  11. Aloui, Chaker & Hkiri, Besma, 2014. "Co-movements of GCC emerging stock markets: New evidence from wavelet coherence analysis," Economic Modelling, Elsevier, Elsevier, vol. 36(C), pages 421-431.
  12. Thomas Nitschka, 2005. "The U.S. consumption-wealth ratio and foreign stock markets: International evidence for return predictability," Money Macro and Finance (MMF) Research Group Conference 2005, Money Macro and Finance Research Group 22, Money Macro and Finance Research Group.
  13. Thomas Nitschka, 2010. "International Evidence for Return Predictability and the Implications for Long-Run Covariation of the G7 Stock Markets," German Economic Review, Verein für Socialpolitik, Verein für Socialpolitik, vol. 11, pages 527-544, November.
  14. Moshirian, Fariborz & Nguyen, Huong Giang (Lily) & Pham, Peter Kien, 2012. "Overnight public information, order placement, and price discovery during the pre-opening period," Journal of Banking & Finance, Elsevier, Elsevier, vol. 36(10), pages 2837-2851.
  15. Baele, Lieven & Inghelbrecht, Koen, 2009. "Time-varying Integration and International diversification strategies," Journal of Empirical Finance, Elsevier, Elsevier, vol. 16(3), pages 368-387, June.
  16. Nikola Gradojević & Eldin Dobardžić, 2013. "Causality between Regional Stock Markets: A Frequency Domain Approach," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 60(5), pages 633-647, September.
  17. Rodrigo F. Aranda L. & Patricio Jaramillo G., 2010. "Non-linear Dynamics in the Chilean Stock Market: Evidence on Traded Volumes and Returns," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 13(3), pages 67-94, December.
  18. De Moor, Lieven & Sercu, Piet, 2011. "Country versus sector factors in equity returns: The roles of non-unit exposures," Journal of Empirical Finance, Elsevier, Elsevier, vol. 18(1), pages 64-77, January.
  19. John Ammer & Jon Wongswan, 2004. "Cash flows and discount rates, industry and country effects, and co-movement in stock returns," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 818, Board of Governors of the Federal Reserve System (U.S.).
  20. Geert Bekaert & Micheal Ehrmann & Marcel Fratzscher & Arnaud Mehl, 2014. "The Global Crisis and Equity Market Contagion," Discussion Papers of DIW Berlin 1352, DIW Berlin, German Institute for Economic Research.
  21. Bai, Ye & Green, Christopher J. & Leger, Lawrence, 2012. "Industry and country factors in emerging market returns: Did the Asian crisis make a difference?," Emerging Markets Review, Elsevier, Elsevier, vol. 13(4), pages 559-580.

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