IMF Working Papers

International Financial Connection and Stock Return Comovement

By Sakai Ando

August 22, 2019

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Format: Chicago

Sakai Ando. International Financial Connection and Stock Return Comovement, (USA: International Monetary Fund, 2019) accessed November 23, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper studies whether bilateral international financial connection data help predict bilateral stock return comovement. It is shown that, when the United States is chosen as the benchmark, a larger U.S. portfolio investment asset position on the destination economy predicts a stronger stock return comovement between them. For large economies such as the United States and Germany, the portfolio investment position is also the best predictor among other connection variables. The paper discusses with a simple general equilibrium portfolio model that the empirical pattern is consistent with the behavior of index investors who trade in response to risk-on/risk-off shocks.

Subject: Balance of payments, Bond yields, Financial institutions, Financial markets, Foreign direct investment, Portfolio investment, Stock markets, Stocks

Keywords: Asset data, Asset economy, Bond yields, Comovement data, Comovement variable, Equity return, Foreign direct investment, Global, International investment position, Portfolio investment, Portfolio investment data, Portfolio investment position, Risk tolerance, Risk-off, Risk-on, Stock markets, Stock return behavior, Stock return comovement, Stock return correlation, Stocks, WP

Publication Details

  • Pages:

    33

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2019/181

  • Stock No:

    WPIEA2019181

  • ISBN:

    9781513509822

  • ISSN:

    1018-5941

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