Origins of International Factor Structures

48 Pages Posted: 26 Jun 2019 Last revised: 9 Apr 2020

Date Written: June 28, 2019


We develop and test a model of the global trade network. This model connects international comovements of quantities and asset prices to a simple measure of network closeness, constructed from observed trade weights. We 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 a component driven by primitive productivity shocks and a component due to network transmissions. Asset price correlations tend to be explained by the network structure, while consumption correlations by the correlations of primitive shocks. (3) The trade network generates factor structures in equity returns and exchange rate movements. It helps to explain 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.

Keywords: International Comovements, Exchange Rates, Trade Networks

JEL Classification: F10, F31, F44, G15

Suggested Citation

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

Zhengyang Jiang

Kellogg School of Management - Department of Finance ( email )

Evanston, IL 60208
United States


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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