International Stock Comovements with Endogenous Clusters

Laura Coroneo, Laura Jackson Young and Michael Owyang

Journal of Economic Dynamics and Control, 2020, vol. 116, issue C

Abstract: We examine international stock return comovements of country-industry portfolios. Our model allows comovements to be driven by a global and a cluster component, with the cluster membership endogenously determined. Results indicate that country-industry portfolios tend to cluster mainly within geographical areas that can include one or more countries. The cluster compositions substantially changed over time, with the emergence of clusters among European countries from the early 2000s. The cluster component was the main driver of country-industry portfolio returns for most of the sample, except from the mid-2000s to the mid-2010s when the global component had a more prominent role.

Keywords: Diversification; Risk; International financial markets; Clustered factor model (search for similar items in EconPapers)
JEL-codes: C38 G15 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:116:y:2020:i:c:s0165188920300725

DOI: 10.1016/j.jedc.2020.103904

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