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Has the Pricing of Stocks Become More Global?

Ivan Petzev, Andreas Schrimpf and Alexander F. Wagner
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Ivan Petzev: University of Zurich
Alexander F. Wagner: University of Zurich, Centre for Economic Policy Research (CEPR), European Corporate Governance Institute (ECGI), and Swiss Finance Institute

No 15-48, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We show that in recent years global factor models have been catching up significantly with their local counterparts in terms of explanatory power (R2) for international stock returns. This catch-up is driven by a rise in global factor betas, not a rise in factor volatilities, suggesting that the effect is likely to be permanent. Yet, there is no conclusive evidence for a global factor model catch-up in terms of pricing errors (alpha) or a convergence in country-specific factor premia. These findings suggest that global financial markets have progressed surprisingly little towards fully integrated pricing, different from what should be expected under financial market integration. We discuss alternative explanations for these patterns and assess implications for practice.

Keywords: International Asset Pricing; Size; Value; Momentum; Financial Integration; Factor Models (search for similar items in EconPapers)
JEL-codes: F36 G12 G15 (search for similar items in EconPapers)
Pages: 79 pages
Date: 2015-11, Revised 2016-04
New Economics Papers: this item is included in nep-fmk and nep-ifn
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Citations: View citations in EconPapers (2)

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http://ssrn.com/abstract=2693024 (application/pdf)

Related works:
Working Paper: Has the pricing of stocks become more global? (2016) Downloads
Working Paper: Has the Pricing of Stocks Become More Global? (2015) Downloads
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