tailieunhanh - International Stock Return Comovements

With the above in mind, we argue that a mood variable must satisfy three key characteristics to rationalize studying its link with stock returns. First, the given variable must drive mood in a substantial and unambiguous way, so that its effect is powerful enough to show up in asset prices. Second, the variable must impact the mood of a large proportion of the population, so that it is likely to affect enough investors. Third, the effect must be correlated across the majority of individuals within a country | THE JOURNAL OF FINANCE VOL. LXIV NO. 6 DECEMBER 2009 International Stock Return Comovements GEERT BEKAERT ROBERT J. HODRICK and XIAOYAN ZHANG ABSTRACT We examine international stock return comovements using country-industry and country-style portfolios as the base portfolios. We first establish that parsimonious risk-based factor models capture the data covariance structure better than the popular Heston-Rouwenhorst 1994 model. We then establish the following stylized facts regarding stock return comovements. First there is no evidence for an upward trend in return correlations except for the European stock markets. Second the increasing importance of industry factors relative to country factors was a short-lived phenomenon. Third large growth stocks are more correlated across countries than are small value stocks and the difference has increased over time. The study of comovements between stock returns is at the heart of finance and has recently received much interest in a variety of literatures especially in international finance. First recent articles such as Cavaglia Brightman and Aked 2000 have challenged the classic result from Heston and Rouwenhorst 1994 that country factors are more important drivers of volatility and comovements than are industry factors. If true there are important implications for asset management and the benefits of international diversification. Second it is generally believed that increased capital market integration should go hand-in-hand with increased cross-country correlations. Whereas there has been much empirical work in this area such as Longin and Solnik 1995 it is fair to say that there is no definitive evidence that cross-country correlations are significantly and permanently higher now than they were say 10 years ago. Moreover while the first and second questions are related few articles have actually made the link explicitly. Third the study of correlations has received a boost by well-publicized crises in emerging markets