Country and Industry Dynamics in Stock Returns
Electronic Access:
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Summary:
A perennial question in international finance is to what extent stock returns are influenced by country-location, as opposed to industry-affiliation, factors. This paper develops a novel methodology to measure these effects, in which portfolios mimicking "pure" country and industry factors are first constructed and their joint dynamics then modeled as regime-switching processes. Estimation using global firm-level data allows us to identify well-defined volatility states over the past thirty years and shows that the contribution of the industry factor becomes systematically more prominent during high global volatility states, while the country factor contribution declines. Using the model's estimates, we find that portfolio diversification possibilities vary considerably across economic states.
Series:
Working Paper No. 2003/052
Subject:
Econometric analysis Expenditure Financial institutions Financial markets Market capitalization Public expenditure review Stock markets Stocks Time series analysis
English
Publication Date:
March 1, 2003
ISBN/ISSN:
9781451847277/1018-5941
Stock No:
WPIEA0522003
Pages:
51
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