Cross-Industry Diversification: Integration, Bubble and Predictability

Posted: 26 Nov 2008 Last revised: 6 Apr 2015

See all articles by Marco A. Navone

Marco A. Navone

Finance Discipline Group - UTS Business School; Bocconi University - CAREFIN - Centre for Applied Research in Finance; Financial Research Network (FIRN)

Emilio Grisolia

Lehman Brothers International, Europe

Date Written: September 1, 2008

Abstract

In this paper we analyze the relative importance of country and industry pure factors on the cross-section of stock returns. We show that, although the supremacy of industry factors, reported in a number of recent studies, is due to a time sample bias related to the so-called "technology bubble", the predictability level of pure factor returns and correlations seems to point to a more stable change in the structure of equity returns. We also introduce a regional factor and demonstrate that the vast majority of cross-country variation is, in fact, at the regional level.

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Keywords: portfolio diversification, factor models, economic integration

JEL Classification: G15, G11

Suggested Citation

Navone, Marco A. and Grisolia, Emilio, Cross-Industry Diversification: Integration, Bubble and Predictability (September 1, 2008). CAREFIN Research Paper No. 9/08, Available at SSRN: https://ssrn.com/abstract=1306875

Marco A. Navone (Contact Author)

Finance Discipline Group - UTS Business School ( email )

Haymarket
Sydney, NSW 2007
Australia

Bocconi University - CAREFIN - Centre for Applied Research in Finance

Via Sarfatti, 25
Milan, 20136
Italy

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Emilio Grisolia

Lehman Brothers International, Europe ( email )

25 Bank Street
30th Floor
London E14 5LE
United Kingdom

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