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International Stock Comovements with Endogenous Clusters

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  • Coroneo, Laura
  • Jackson, Laura E.
  • Owyang, Michael T.

Abstract

We examine international stock return comovements of country-industry portfolios. Our model allows comovements to be driven by a global and a cluster component, with the cluster membership endogenously determined. Results indicate that country-industry portfolios tend to cluster mainly within geographical areas that can include one or more countries. The cluster compositions substantially changed over time, with the emergence of clusters among European countries from the early 2000s. The cluster component was the main driver of country-industry portfolio returns for most of the sample, except from the mid-2000s to the mid-2010s when the global component had a more prominent role.

Suggested Citation

  • Coroneo, Laura & Jackson, Laura E. & Owyang, Michael T., 2020. "International Stock Comovements with Endogenous Clusters," Journal of Economic Dynamics and Control, Elsevier, vol. 116(C).
    • Handle: RePEc:eee:dyncon:v:116:y:2020:i:c:s0165188920300725
    DOI: 10.1016/j.jedc.2020.103904
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    Cited by:

    1. Liu, Yuntong & Wei, Yu & Wang, Qian & Liu, Yi, 2022. "International stock market risk contagion during the COVID-19 pandemic," Finance Research Letters, Elsevier, vol. 45(C).

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    More about this item

    Keywords

    Diversification; Risk; International financial markets; Clustered factor model;
    All these keywords.

    JEL classification:

    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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