International Stock Return Comovements

59 Pages Posted: 3 Jan 2007

See all articles by Geert Bekaert

Geert Bekaert

Columbia Business School - Finance and Economics

Robert J. Hodrick

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Xiaoyan Zhang

Tsinghua University - PBC School of Finance

Multiple version iconThere are 3 versions of this paper

Date Written: November 2006

Abstract

We examine international stock return comovements using country-industry and country-style portfolios. We first establish that parsimonious risk-based factor models capture the covariance structure of the data better than the popular Heston-Rouwenhorst (1994) model. We then establish the following stylized facts regarding stock return comovements. First, we do not find evidence for an upward trend in return correlations, excpet for the European stock markets. Second, the increasing imporatnce of industry factors relative to country factors was a short-lived, temporary phenomenon. Third, we find no evidence for a trend in idiosyncratic risk in any of the countries we examine.

Keywords: International diversification, correlation dynamics, country debate, factor models, comovements

JEL Classification: C52, G11, G12

Suggested Citation

Bekaert, Geert and Hodrick, Robert J. and Zhang, Xiaoyan, International Stock Return Comovements (November 2006). CEPR Discussion Paper No. 5955. Available at SSRN: https://ssrn.com/abstract=954734

Geert Bekaert (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

Robert J. Hodrick

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

365 Fifth Avenue, 5th Floor
New York, NY 10016-4309
United States

Xiaoyan Zhang

Tsinghua University - PBC School of Finance

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

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