Country and Industry Dynamics in Stock Returns

IMF Working Papers, March 1, 2003

Source details

Authors: Luis Catão, Allan Timmermann
Date: March 1, 2003
Series: Working Paper No. 2003/052
Issue: 052
Volume: 2003
Pages: 51
DOI: https://doi.org/10.5089/9781451847277.001
ISBN: 9781451847277
ISSN: 1018-5941
Core question: To what extent are stock returns influenced by country-location factors versus industry-affiliation factors?

Constructs portfolios mimicking "pure" country and industry factors.
Models the joint dynamics of these constructed portfolios as regime-switching processes.
Estimation is performed using global firm-level data spanning the past thirty years (as used in the paper).

Identification of well-defined volatility states over the past thirty years through the regime-switching model.
The contribution of the industry factor becomes systematically more prominent during high global volatility states, while the country factor contribution declines.
Portfolio diversification possibilities vary considerably across economic states, based on the model's estimates.

Subject: Econometric analysis, Expenditure, Financial institutions, Financial markets, Market capitalization, Public expenditure review, Stock markets, Stocks, Time series analysis
Keywords: country effect, country portfolio, Diversification, Europe, Global, industry factor, industry portfolio, industry state process, International Financial Markets, Market capitalization, Public expenditure review, Regime Switching, Risk, Stock markets, Stocks, Time series analysis, volatility State, Volatility States, WP

IMF Working Paper — "Country and Industry Dynamics in Stock Returns" by Luis Catão and Allan Timmermann, March 1, 2003.

Country and Industry Dynamics in Stock Returns - WP/03/52, Rev. 1
- Country and Industry Dynamics in Stock Returns - WP/03/52, Rev. 1 (Markdown version)
- Country and Industry Dynamics in Stock Returns - WP/03/52, Rev. 1 (PDF)