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Comovement in International Equity Markets

Comovement in International Equity Markets
Author: W. Jos Jansen
Publisher:
Total Pages: 28
Release: 2011
Genre:
ISBN:
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We investigate shifts in correlation patterns among international equity returns at the market level as well as the industry level. We develop a novel bivariate GARCH model for equity returns with a smoothly time-varying correlation and then derive a Lagrange Multiplier statistic to test the constant-correlation hypothesis directly. Applying the test to weekly data from Germany, Japan, the UK and the US in the period 1980-2000, we find that correlations among the German, UK and US stock markets have doubled, whereas Japanese correlations have remained the same. Both dates of change and speeds of adjustment vary widely across countries and sectors.

Firm-Level Evidenceon International Stock Market Comovement

Firm-Level Evidenceon International Stock Market Comovement
Author: Mr.Marco Del Negro
Publisher: International Monetary Fund
Total Pages: 32
Release: 2003-03-01
Genre: Business & Economics
ISBN: 1451847645
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We explore the link between international stock market comovement and the degree to which firms operate globally. Using stock returns and balance sheet data for companies in 20 countries, we estimate a factor model that decomposes stock returns into global, country-specific and industry-specific shocks. We find a large and highly significant link: on average, a firm raising its international sales by 10 percent raises the exposure of its stock return to global shocks by 2 percent and reduces its exposure to country-specific shocks by 1.5 percent. This link has grown stronger since the mid-1980s.

The Rise in Comovement Across National Stock Markets

The Rise in Comovement Across National Stock Markets
Author: Robin Brooks
Publisher: International Monetary Fund
Total Pages: 46
Release: 2002-09
Genre: Business & Economics
ISBN:
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The degree of comovement across national stock markets has increased dramatically since the mid-1990s. This has overturned a stylized fact in the international portfolio diversification literature that diversifying across countries is more effective for risk reduction than diversifying across industries. We investigate if this rise in comovement is a permanent phenomenon driven by greater economic and financial integration, or a temporary effect associated with the recent stock market bubble. At the global level, our results point to the bubble. At a regional level, we find evidence of a significant rise in market integration within Europe, possibly a reflection of institutional changes such as the EMU.

Additions to Market Indices and the Comovement of Stock Returns Around the World

Additions to Market Indices and the Comovement of Stock Returns Around the World
Author: Yishay Yafeh
Publisher: International Monetary Fund
Total Pages: 36
Release: 2011-03-01
Genre: Business & Economics
ISBN: 1455218952
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Using newly-constructed data covering the last decade, we document that, in most of forty markets, when added to the main index, firms’ returns experience an increase in comovement with the rest of the index, reflected in higher beta and greater explanatory power of the market return. Stock turnover and analyst coverage also typically increase upon inclusion. Using various tests, we find the demand-based view of comovement (the category/habitat theories of Barberis, Shleifer and Wurgler, 2005) to provide a good explanation for many of our findings. Some results, though, suggest that information-related factors are also important in explaining the increased comovement.

Excess Comovement in International Equity Markets

Excess Comovement in International Equity Markets
Author: Ian A. Cooper
Publisher:
Total Pages: 36
Release: 2009
Genre:
ISBN:
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Using a large sample of cross-border mergers we measure the effect of a change in location on systematic risk. We document a large, widespread, and robust effect. When a target firm's location moves as a result of an international merger, a large part of its systematic risk switches from being related to its home equity market to that of the acquirer. On average the beta of the pooled target and acquirer with respect to the acquirer market increases by 0.155 and the beta with respect to the target market declines by 0.117. This is equivalent to an excess shift of about 0.5 in the target's beta from its home market to that of the acquirer. We test whether the change in systematic risk can be explained by fundamental factors related to changes in the operations of the firm or merger synergy and find that it cannot.