Industry Risk and Market Integration
43 Pages Posted: 11 Jan 2001
Date Written: July 2003
Traditionally, integration has been studied at the country level. With increasing economic integration, industrial reorganization, and blurring of national boundaries (e.g., EU), it is important to investigate global integration at the industry level. We argue that country-level integration (segmentation) does not preclude industry-level segmentation (integration). Indeed, our results suggest that a country is integrated with (segmented from) the world capital markets only if most of her industries are integrated (segmented). We also show that although global industry risk is small, it can be priced for certain industries. Industries that are priced differently from either the world or domestic markets represent incremental opportunities for international diversification.
Keywords: Imperfect industry integration, Global industry risk, Conditional asset pricing, Portfolio diversification
JEL Classification: G11, G12, G15
Suggested Citation: Suggested Citation