Are Practitioners Right? On the Relative Importance of Industrial Factors in International Stock Returns

22 Pages Posted: 2 Mar 2002

See all articles by Dušan Isakov

Dušan Isakov

University of Fribourg (Switzerland) - Faculty of Management, Economics and Social Sciences

Frederic Sonney

University of Neuchatel and SFI (FAME)

Date Written: February 2003

Abstract

This paper investigates the relative influences of industrial and country factors in international stock returns. Until very recently, academic research has consistently found that country factors dominate industrial factors. This result is in contradiction with practitioners beliefs. This paper re-examines this issue by analyzing a sample of more than 4000 stocks quoted in 20 developed countries. We find that on average the country effect still dominates stock returns over the period 1997-2000. This result has to be interpreted with caution though, as an analysis that allows for time-varying relative influences demonstrates the rapidly increasing impact of industry effects in recent times. We find, in particular, that this trend is common to all 20 developed countries considered and not only to those that are member of the European Monetary Union. We interpret this result as evidence of the increasing globalization of international equity markets.

Keywords: International stock markets, industries, global factors, diversification

JEL Classification: F21, G12, G15

Suggested Citation

Isakov, Dušan and Sonney, Frederic, Are Practitioners Right? On the Relative Importance of Industrial Factors in International Stock Returns (February 2003). Available at SSRN: https://ssrn.com/abstract=301536 or http://dx.doi.org/10.2139/ssrn.301536

Dušan Isakov (Contact Author)

University of Fribourg (Switzerland) - Faculty of Management, Economics and Social Sciences ( email )

Fribourg, CH 1700
Switzerland

HOME PAGE: http://www3.unifr.ch/cgf/en/

Frederic Sonney

University of Neuchatel and SFI (FAME) ( email )

Fbg de l'Hopital 77
Neuchatel, 2000
Switzerland

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