Country and Industry Dynamics in Stock Returns

Allan Timmermann and Catão, Luís
Authors registered in the RePEc Author Service: Luís A.V. Catão ()

No 4368, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: An important question in international finance is to what extent stock return volatility is influenced by country location, industry affiliation, and global factors. This Paper develops a new methodology to measure these effects, in which portfolios mimicking ?pure? country and industry factors are first constructed and their joint dynamics then modelled as regime-switching processes. Applying this methodology to a uniquely long set of international firm level data, we identify well-defined high and low volatility states over the past 30 years, and show that the contribution of industry and country factors to stock return volatility varies markedly across such states. In particular, we find that the country factor contribution drops markedly when global equity market volatility rises, and that country return correlations become tighter when global and industry factors are both in a high volatility state. Key implications for global portfolio allocation are discussed.

Keywords: Diversification; Risk; Volatility states; International financial markets (search for similar items in EconPapers)
JEL-codes: C10 G11 G15 (search for similar items in EconPapers)
Date: 2004-04
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://cepr.org/publications/DP4368 (application/pdf)

Related works:
Working Paper: Country and Industry Dynamics in Stock Returns (2003)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:4368

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP4368

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().