Country and Industry Dynamics in Stock Returns

WPIEA0522003 Image
Price:  $15.00

Author/Editor: Allan Timmermann, Luis Catão
Release Date: © March, 2003
ISBN : 978-1-45184-727-7
Stock #: WPIEA0522003
Stock Status: Available

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A perennial question in international finance is to what extent stock returns are influenced by country-location, as opposed to industry-affiliation, factors. This paper develops a novel methodology to measure these effects, in which portfolios mimicking "pure" country and industry factors are first constructed and their joint dynamics then modeled as regime-switching processes. Estimation using global firm-level data allows us to identify well-defined volatility states over the past thirty years and shows that the contribution of the industry factor becomes systematically more prominent during high global volatility states, while the country factor contribution declines. Using the model's estimates, we find that portfolio diversification possibilities vary considerably across economic states.


International capital markets , International financial system

More publications in this series: Working Papers

More publications by: Allan Timmermann ; Luis Catão