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International Stock Return Comovements

  • Bekaert, Geert

    (Columbia U)

  • Hodrick, Robert J.
  • Zhang, Xiaoyan

    (Cornell U)

We examine international stock return comovements using country-industry and country-style portfolios as the base portfolios. We first establish that parsimonious risk-based factor models capture the covariance structure of the data better than the popular Heston-ouwenhorst (1994) model. We then establish the following stylized facts regarding stock return comovements. First, we do not find evidence for an upward trend in return correlations, except for the European stock markets. Second, the increasing importance of industry factors relative to country factors was a short-lived, temporary phenomenon. Third, we find no evidence for a trend in idiosyncratic risk in any of the countries we examine.

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Paper provided by University of Pennsylvania, Wharton School, Weiss Center in its series Working Papers with number 06-3.

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Date of creation: Nov 2005
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Handle: RePEc:ecl:upafin:06-3
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  11. Carrieri, Francesca & Errunza, Vihang & Sarkissian, Sergei, 2006. "The Dynamics of Geographic versus Sectoral Diversification: Is There a Link to the Real Economy?," Working Papers 06-4, University of Pennsylvania, Wharton School, Weiss Center.
  12. Geert Bekaert & Campbell R. Harvey, 1997. "Foreign Speculators and Emerging Equity Markets," William Davidson Institute Working Papers Series 79, William Davidson Institute at the University of Michigan.
  13. Luis Catão & Allan Timmermann, 2003. "Country and Industry Dynamics in Stock Returns," IMF Working Papers 03/52, International Monetary Fund.
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  24. Geert Bekaert & Campbell R. Harvey (ed.), 2004. "Emerging Markets," Books, Edward Elgar Publishing, number 2836, April.
  25. Longin, Francois & Solnik, Bruno, 1995. "Is the correlation in international equity returns constant: 1960-1990?," Journal of International Money and Finance, Elsevier, vol. 14(1), pages 3-26, February.
  26. Baele, L., 2003. "Volatility Spillover Effects in European Equity Markets," Discussion Paper 2003-114, Tilburg University, Center for Economic Research.
  27. 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.
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  29. Kallberg, Jarl & Pasquariello, Paolo, 2008. "Time-series and cross-sectional excess comovement in stock indexes," Journal of Empirical Finance, Elsevier, vol. 15(3), pages 481-502, June.
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