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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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Find related papers by JEL classification:
  • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
  • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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  12. Kathryn M.E Dominguez & Linda L. Tesar, 2000. "Trade and Exposure," Working Papers 466, Research Seminar in International Economics, University of Michigan.
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  14. John M. Griffin & G. Andrew Karolyi, . "Another Look at the Role of the Industrial Structure of Markets for International Diversification Strategies," Research in Financial Economics 9608, Ohio State University.
  15. Robin Brooks & Marco Del Negro, 2002. "International diversification strategies," FRB Atlanta Working Paper 2002-23, Federal Reserve Bank of Atlanta.
  16. Hamerle, Alfred & Liebig, Thilo & Scheule, Harald, 2004. "Forecasting Credit Portfolio Risk," Discussion Paper Series 2: Banking and Financial Studies 2004,01, Deutsche Bundesbank, Research Centre.
  17. John M. Griffin & Rene M. Stulz, 1997. "International Competition and Exchange Rate Shocks: A Cross-Country Industry Analysis of Stock Returns," NBER Working Papers 6243, National Bureau of Economic Research, Inc.
  18. Robin Brooks & Marco Del Negro, 2002. "The rise in comovement across national stock markets: market integration or IT bubble?," FRB Atlanta Working Paper 2002-17, Federal Reserve Bank of Atlanta.
  19. Stockman, Alan C., 1988. "Sectoral and national aggregate disturbances to industrial output in seven European countries," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 387-409.
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  22. Dumas, Bernard & Solnik, Bruno, 1995. " The World Price of Foreign Exchange Risk," Journal of Finance, American Finance Association, vol. 50(2), pages 445-79, June.
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