EconPapers    
Economics at your fingertips  
 

Foreign Direct Investment as a Determinant of Cross-Country Stock Market Comovement

Alexis Anagnostopoulos (), Orhan Atesagaoglu, Elisa Faraglia () and Chryssi Giannitsarou ()

No 1912, Discussion Papers from Centre for Macroeconomics (CFM)

Abstract: We develop a theoretical framework in order to investigate the link between two recent trends: (i) the rise in cross-country stock market correlations over the past three decades, and (ii) the increase in global foreign direct investment (FDI) positions over the same period. Our objective is twofold: first, we investigate empirically the channel through which the rise in global stock market correlations is associated with the observed increase in global FDI. Second, we develop a two-country stochastic asset pricing model with multinational firms that allows us to quantify the extent to which the recent rise in global FDI can account for the observed increase in cross-country stock market comovement. Calibrating three versions of the model (financial autarky, incomplete markets and complete markets) to the US and the rest-of-the-world, we find that a permanent inrcease in FDI positions, as observed from mid 1990s to mid 2000s, leads to substantial increase in cross-country stock market comovements. Increases in FDI alone can account for approximately one third of the observed increase in stock market correlations. We also discuss the role of portfolio diversification and, more generally, asset market integration.

JEL-codes: G12 G15 F21 F23 F44 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2019-07
New Economics Papers: this item is included in nep-dge and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.centreformacroeconomics.ac.uk/Discussio ... MDP2019-12-Paper.pdf (application/pdf)

Related works:
Working Paper: Foreign Direct Investment as a Determinant of Cross-Country Stock Market Comovement (2019) Downloads
Working Paper: Foreign Direct Investment as a Determinant of Cross-Country Stock~Market Comovement (2019) Downloads
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:cfm:wpaper:1912

Access Statistics for this paper

More papers in Discussion Papers from Centre for Macroeconomics (CFM) Contact information at EDIRC.
Bibliographic data for series maintained by Martin Hannon ().

 
Page updated 2020-11-13
Handle: RePEc:cfm:wpaper:1912