Publication:
Assessing the International Comovement of Equity Returns

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dc.contributor.authorAbate, Girum Dagnachew
dc.contributor.authorServen, Luis
dc.date.accessioned2018-07-16T13:37:00Z
dc.date.available2018-07-16T13:37:00Z
dc.date.issued2018-07
dc.description.abstractThe international comovement of equity returns has been viewed as reflecting either pervasive common shocks or local linkages between countries. This paper brings these perspectives together by assessing the comovement of equity returns in a dynamic model that allows for both common factors and spatial dependence, using quarterly data for 40 advanced and emerging countries over the past two decades, and including GDP growth, the real interest rate, and credit as fundamental variables. Estimation results employing a bias-corrected quasi-maximum likelihood approach provide strong indication that the cross-country dependence of equity returns results from both spatial effects and common shocks captured by a latent common factor -- weak and strong dependence, respectively. The factor exhibits a robust negative correlation with market measures of aggregate risk. Countries' exposure to the common factor rises with their extent of trade openness and the degree of rigidity of their exchange rate regime. Despite its simplicity, the empirical model fits the data well. All these results are robust to the use of alternative spatial weight matrices. The paper also shows that ignoring cross-country dependence leads to distorted parameter estimates and a marked deterioration of the explanatory power of the empirical model.en
dc.identifierhttp://documents.worldbank.org/curated/en/443411531314807821/Assessing-the-international-comovement-of-equity-returns
dc.identifier.doi10.1596/1813-9450-8516
dc.identifier.urihttps://hdl.handle.net/10986/29989
dc.languageEnglish
dc.publisherWorld Bank, Washington, DC
dc.relation.ispartofseriesPolicy Research Working Paper;No. 8516
dc.rightsCC BY 3.0 IGO
dc.rights.holderWorld Bank
dc.rights.urihttp://creativecommons.org/licenses/by/3.0/igo
dc.subjectEQUITY RETURN
dc.subjectSPATIAL ANALYSIS
dc.subjectINTEREST RATE
dc.subjectEXCHANGE RATES
dc.subjectSTOCK MARKET CAPITALIZATION
dc.subjectFOREIGN DIRECT INVESTMENT
dc.subjectMOVEMENT OF CAPITAL
dc.subjectSTOCK MARKET INDEX
dc.subjectCAPITAL MARKETS
dc.subjectTRADE POLICY
dc.subjectECONOMIC SHOCKS
dc.subjectEMPIRICAL MODEL
dc.titleAssessing the International Comovement of Equity Returnsen
dc.typeWorking Paperen
dc.typeDocument de travailfr
dc.typeDocumento de trabajoes
dspace.entity.typePublication
okr.crossref.titleAssessing the International Comovement of Equity Returns
okr.date.disclosure2018-07-11
okr.doctypePublications & Research
okr.doctypePublications & Research::Policy Research Working Paper
okr.docurlhttp://documents.worldbank.org/curated/en/443411531314807821/Assessing-the-international-comovement-of-equity-returns
okr.guid443411531314807821
okr.identifier.doi10.1596/1813-9450-8516
okr.identifier.externaldocumentum090224b085d703ee_1_0
okr.identifier.internaldocumentum30250619
okr.identifier.reportWPS8516
okr.importedtrueen
okr.language.supporteden
okr.pdfurlhttp://documents.worldbank.org/curated/en/443411531314807821/pdf/WPS8516.pdfen
okr.statistics.combined1420
okr.statistics.dr443411531314807821
okr.statistics.drstats1075
okr.topicFinance and Financial Sector Development::Capital Markets and Capital Flows
okr.topicFinance and Financial Sector Development::Currencies and Exchange Rates
okr.topicInternational Economics and Trade::Capital Flows
okr.topicInternational Economics and Trade::Trade Finance and Investment
okr.topicMacroeconomics and Economic Growth::Business Cycles and Stabilization Policies
okr.unitDevelopment Research Group, Development Economics
relation.isAuthorOfPublication2c4139d2-7458-5296-9aea-6d3db3e1ae1e
relation.isAuthorOfPublication.latestForDiscovery2c4139d2-7458-5296-9aea-6d3db3e1ae1e
relation.isSeriesOfPublication26e071dc-b0bf-409c-b982-df2970295c87
relation.isSeriesOfPublication.latestForDiscovery26e071dc-b0bf-409c-b982-df2970295c87
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