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International stock return comovements

Author

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  • Bekaert, Geert
  • Hodrick, Robert J.
  • Zhang, Xiaoyan

Abstract

We examine international stock return co-movements 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 co-movements. 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. JEL Classification: C52, G11, G12

Suggested Citation

  • Bekaert, Geert & Hodrick, Robert J. & Zhang, Xiaoyan, 2008. "International stock return comovements," Working Paper Series 931, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:2008931
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    References listed on IDEAS

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    More about this item

    Keywords

    APT model; co-movements; correlation dynamics; factor models; global market integration; industry country debate; international diversification;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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