International Financial Connection and Stock Return Comovement

Author/Editor:

Sakai Ando

Publication Date:

August 22, 2019

Electronic Access:

Download PDF. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

This paper studies whether bilateral international financial connection data help predict bilateral stock return comovement. It is shown that, when the United States is chosen as the benchmark, a larger U.S. portfolio investment asset position on the destination economy predicts a stronger stock return comovement between them. For large economies such as the United States and Germany, the portfolio investment position is also the best predictor among other connection variables. The paper discusses with a simple general equilibrium portfolio model that the empirical pattern is consistent with the behavior of index investors who trade in response to risk-on/risk-off shocks.

Series:

Working Paper No. 19/181

Subject:

English

Publication Date:

August 22, 2019

ISBN/ISSN:

9781513509822/1018-5941

Stock No:

WPIEA2019181

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

33

Please address any questions about this title to publications@imf.org