International Stock Comovements with Endogenous Clusters
Laura Coroneo (),
Laura Jackson and
Michael Owyang ()
No 2018-38, Working Papers from Federal Reserve Bank of St. Louis
We use an endogenous cluster factor model to examine international stock return comovements of country-industry portfolios. Our model allows country-industry portfolio 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 component was the main driver of country-industry portfolio returns for most of the sample, except from mid-2000 to mid-2010s when the global component had a more prominent role. At the end of the sample, a large cluster among European countries emerges.
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)
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