Has the Pricing of Stocks Become More Global?

79 Pages Posted: 19 Nov 2015 Last revised: 14 Apr 2016

See all articles by Ivan Petzev

Ivan Petzev

affiliation not provided to SSRN

Andreas Schrimpf

Bank for International Settlements (BIS) - Monetary and Economic Department

Alexander F. Wagner

University of Zurich - Department of Banking and Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swiss Finance Institute

Multiple version iconThere are 3 versions of this paper

Date Written: April 13, 2016

Abstract

We show that in recent years global factor models have been catching up significantly with their local counterparts in terms of explanatory power (R2) for international stock returns. This catch-up is driven by a rise in global factor betas, not a rise in factor volatilities, suggesting that the effect is likely to be permanent. Yet, there is no conclusive evidence for a global factor model catch-up in terms of pricing errors (alpha) or a convergence in country-specific factor premia. These findings suggest that global financial markets have progressed surprisingly little towards fully integrated pricing, different from what should be expected under financial market integration. We discuss alternative explanations for these patterns and assess implications for practice.

Keywords: International Asset Pricing, Size, Value, Momentum, Financial Integration, Factor Models

JEL Classification: F36, G12, G15

Suggested Citation

Petzev, Ivan and Schrimpf, Andreas and Wagner, Alexander F., Has the Pricing of Stocks Become More Global? (April 13, 2016). Swiss Finance Institute Research Paper No. 15-48, Available at SSRN: https://ssrn.com/abstract=2693024 or http://dx.doi.org/10.2139/ssrn.2693024

Ivan Petzev

affiliation not provided to SSRN

Andreas Schrimpf (Contact Author)

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Alexander F. Wagner

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse 14
Zürich, 8032
Switzerland
+41 44 634 3963 (Phone)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Swiss Finance Institute ( email )

Switzerland

HOME PAGE: http://www.alex-wagner.com

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