Origins of International Factor Structures

48 Pages Posted: 26 Jun 2019 Last revised: 30 Jun 2019

Date Written: June 28, 2019


We develop and test a model of the global production and consumption network which connects international co-movements to a simple measure of network closeness. We construct network closeness using observed trade weights in intermediate goods and final consumption goods, and report three findings. (1) Countries that are closer in the network tend to have more correlated consumption growth rates, more correlated stock returns, and more correlated exchange rate movements. (2) International comovements can be decomposed into components driven by primitive shocks and components due to network transmissions. Asset price correlations tend to be explained by the network structure, while consumption correlations by the primitive shock correlations. (3) The trade network generates factor structures in equity returns and exchange rate movements. It explains the existence of the dollar and the carry factors, and gives rise to regional factors. These findings offer a network-based account of the origins of factor structures in international economic quantities and asset prices.

Suggested Citation

Jiang, Zhengyang and Richmond, Robert, Origins of International Factor Structures (June 28, 2019). Available at SSRN: or

Zhengyang Jiang

Kellogg School of Management - Department of Finance ( email )

Evanston, IL 60208
United States

HOME PAGE: http://

Robert Richmond (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

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