IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Country v sector effects in equity returns and the roles of geographical and firm-size coverage

  • Lieven Moor

    ()

  • Piet Sercu

    ()

Since Roll (The Journal of Finance 47(1):3-41, 1992) and Heston and Rouwenhorst (Journal of Financial Economics 36:3-27, 1994), there has been a debate whether country factors in international stock returns are typically more variable than sector factors. The addition of emerging markets (EMs) does boost the ratio of country-factor variance relative to industry-factor variance: these markets have a higher variability, but are also less related to global factors. Investigating to what extent this phenomenon can be tracked down to the impact of adding more small firms, we find the following. (1) Small firms do have higher volatility, but only after controlling for country and sector affiliation. (2) Small firms do have weaker sector affinity, as expected. (3) Small firms unexpectedly have weaker local-market sensitivities than large firms. Facts (2) and (3) mean that adding more small firms to the data base has a diversifying effect on both the sector- and country-factor variance; while the impact on sector variance is larger, the net effect turns out to be tiny. (4) Adding emerging markets has a very marked impact on the variance ratio. In fact, the addition of small stocks to the sample hardly dents the effect of adding EMs. Thus, the role of EMs cannot be reduced to just a small-firm phenomenon. © Springer Science+Business Media, LLC. 2009.

(This abstract was borrowed from another version of this item.)

If 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.

File URL: http://hdl.handle.net/10.1007/s11187-008-9170-6
Download Restriction: Access to full text is restricted to subscribers.

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.

Article provided by Springer in its journal Small Business Economics.

Volume (Year): 35 (2010)
Issue (Month): 4 (November)
Pages: 433-448

as
in new window

Handle: RePEc:kap:sbusec:v:35:y:2010:i:4:p:433-448
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100338

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Campa, José Manuel & Fernandes, Nuno, 2004. "Sources of Gains from International Portfolio Diversification," CEPR Discussion Papers 4390, C.E.P.R. Discussion Papers.
  2. Ehling, Paul & Ramos, Sofia Brito, 2005. "Geographic versus industry diversification: constraints matter," Working Paper Series 0425, European Central Bank.
  3. Brennan, Michael J & Hughes, Patricia J, 1991. " Stock Prices and the Supply of Information," Journal of Finance, American Finance Association, vol. 46(5), pages 1665-91, December.
  4. Forbes, Kristen & Chinn, Menzie David, 2003. "A Decomposition of Global Linkages in Financial Markets Over Time," Working papers 4414-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  5. Dušan Isakov & Frédéric Sonney, 2003. "Are practitioners right? On the relative importance of industrial factors in international stock returns," FAME Research Paper Series rp72, International Center for Financial Asset Management and Engineering.
  6. Bhushan, Ravi, 1989. "Firm characteristics and analyst following," Journal of Accounting and Economics, Elsevier, vol. 11(2-3), pages 255-274, July.
  7. Hardouvelis, Gikas A & Malliaropoulos, Dimitrios & Priestley, Richard, 1999. "EMU and European Stock Market Integration," CEPR Discussion Papers 2124, C.E.P.R. Discussion Papers.
  8. Brooks, Robin & Del Negro, Marco, 2005. "Firm-level evidence on international stock market comovement," Discussion Paper Series 1: Economic Studies 2005,11, Deutsche Bundesbank, Research Centre.
  9. Heston, Steven L. & Rouwenhorst, K. Geert, 1994. "Does industrial structure explain the benefits of international diversification?," Journal of Financial Economics, Elsevier, vol. 36(1), pages 3-27, August.
  10. 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.
  11. Beckers, Stan & Grinold, Richard & Rudd, Andrew & Stefek, Dan, 1992. "The relative importance of common factors across the European equity markets," Journal of Banking & Finance, Elsevier, vol. 16(1), pages 75-95, February.
  12. Gabriele Galati & Kostas Tsatsaronis, 2001. "The impact of the euro on Europe's financial markets," BIS Working Papers 100, Bank for International Settlements.
  13. Ozgur S. Ince & R. Burt Porter, 2006. "INDIVIDUAL EQUITY RETURN DATA FROM THOMSON DATASTREAM: HANDLE WITH CARE!," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 29(4), pages 463-479.
  14. Sentana, Enrique, 2000. "Did the EMS Reduce the Cost of Capital?," CEPR Discussion Papers 2640, C.E.P.R. Discussion Papers.
  15. Marina Emiris, 2002. "Measuring capital market integration," BIS Papers chapters, in: Bank for International Settlements (ed.), Market functioning and central bank policy, volume 12, pages 200-221 Bank for International Settlements.
  16. Roll, Richard, 1992. " Industrial Structure and the Comparative Behavior of International Stock Market Indices," Journal of Finance, American Finance Association, vol. 47(1), pages 3-41, March.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:kap:sbusec:v:35:y:2010:i:4:p:433-448. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)

or (Christopher F. Baum)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.