The New Economy and Global Stock Returns

IMF Working Papers, December 1, 2000

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The New Economy and Global Stock Returns

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Bibliographic details

• Authors: Luis Catão, Robin Brooks
• Published: December 1, 2000
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451875089.001

Summary

• Paper revisits the relative importance of global versus country-specific factors underlying stock returns.
• Constructs a new firm level data set covering emerging and developed markets.
• Estimates a simple factor model that breaks down stock returns into:
  • a global business cycle factor,
  • global industry factors,
  • country-specific factors,
  • firm-level effects.
• Key result: the share of variation in stock returns explained by global industry factors has grown sharply since the mid-1990s, at the expense of country-specific factors.
• Foremost among the global factors is a “new economy” factor, which has become a key determinant of global stock returns.

Data and Methodology

• New firm level data set covering emerging and developed markets.
• Empirical approach: estimation of a simple factor model decomposing returns into global business cycle, global industry, country-specific, and firm-level components.

Main Findings

• Global industry factors:
  • The share of variation in stock returns explained by global industry factors has grown sharply since the mid-1990s.
• Country-specific factors:
  • The explanatory power of country-specific factors has declined as global industry factors rose.
• New economy factor:
  • Identified as foremost among global factors.
  • Described as a key determinant of global stock returns.

Subject Areas and Keywords

• Subject areas: Emerging and frontier financial markets, Financial institutions, Financial markets, Market capitalization, Stock markets, Stocks, Technology.
• Keywords include: Africa, company, country factor, Emerging and frontier financial markets, emerging markets company, factor, factor model, factor return variance, Global, high-tech company, industry factor, industry-affiliation factor rise, international financial integration, Market capitalization, merger company, new economy, only firm, portfolio diversification, stock markets, Stocks, time series, WP.

Content in this bundle

• The New Economy and Global Stock Returns - WP/00/216
  • The New Economy and Global Stock Returns - WP/00/216 (Markdown version)
  • The New Economy and Global Stock Returns - WP/00/216 (PDF)