The structure of international stock market returns (original) (raw)

DEPENDENCE STRUCTURE BETWEEN STOCK RETURNS OF DEVELOPING AND DEVELOPED COUNTRIES

IAEME PUBLICATION, 2021

This study aims to examine the dependence pattern of stock returns prevailing in developing and developed countries. To check the dependence pattern, this study choose sample dataset of stock returns from time span of 2009 to 2019 from stock exchange institutes of Pakistan, Indonesia, Germany and United Kingdom. On the basis of gross domestic product, imports and exports, Pakistan and Indonesia are choosen as developing countries while United Kingdom and Germany as developed countries. In this study, descriptive statistics, copulas approach, spearman’s correlation, kendall’s tau and akaike information criterion (AIC) are the techniques used for testing the hypothesis. Findings show that tail dependence is identical between stock returns of developing and developed countries with the movement in same directions whether increasing or decreasing. Furthermore, results are showing that t-student copula is best-fitted for measuring the dependence pattern among stock institutions of developing and developed countries. This study proves helpful for investors, policy makers and financial representatives for risk management.

International interdependence and dynamic linkages between developed stock markets

South-Eastern Europe Journal of Economics, 2003

The evaluation of the performance of mutual funds (MFs) has been a very interesting research topic not only for researchers, but also for managers of financial, banking and investment institutions. This paper explores the performance of a non-parametric approach in developing MF performance evaluation models. The proposed approach is based on the UTADIS multicriteria decision aid method. The data set consists of daily data for 33 Greek domestic equity MFs, and is used to estimate the performance of the method in classifying the funds into two groups. A cross-validation procedure is employed to evaluate the predictive performance of the models and a comparison with linear discriminant analysis is also performed. The results indicate the superiority of the UTADIS method as opposed to the traditional discrimination technique.

The nexus of anomalies-stock returns-asset pricing models: the international evidence

Borsa IStabul Review, 2018

We study the international stock returns across Europe, Asia Pacific, North America, US, Japan, Global, and Global excluding US. We find there are value premiums in average stock returns across the regions. There is momentum return in all the regions except for Japan. With the exception of Japan, profitability and investment premiums in average stock returns exist across the regions. Further, the value, momentum, and profitability premiums vary with the firm size and premiums decrease from smaller to bigger stocks excluding Japan. We examine whether empirical asset pricing models capture the value, momentum, profitability, and investment pattern in international average returns, and the integration of the asset prices across the regions. We reject the global integrated pricing approach. The performance of local Carhart four-factor model is superior for Japanese size-B/M and size-momentum portfolios. Consequently, the FF five-factor model performs superior for Asia Pacific, North American, and Japanese size-profitability portfolios. In addition, FF five-factor model performs superior for European and Japanese size-investment portfolios.

Does the Factors Model Perform Well in Emerging Market? - the Empirical Evidence of China Stock Market

2019

The most famous asset pricing models, 3factor (Fama and French, 1992, 1993 and 1996) and 5 factor (Fama and French, 2015) model, in the past few decades were applied in many countries. The U.S. (developed financial markets) country-specific additional 2 factors in the 5-factor model, RMW and CMA or profitability premium and investment premium, empirically cannot further capture the return variation of classic 3 factors/chrematistics in China (developing financial markets) stock market. Therefore, the classic 3-factor has better performance than the 5-factor model in China. We do not presume that firms in different countries share same features. Following the (Liu, Stambaugh and Yuan, 2019), we replace the book-to-market ratio to earning-to-price ratio (EP ratio). By using Shanghai and Shenzhen exchange stocks, we find out the redundancy of HML only in the 5-factor model. In the Fama MacBeth regression, the SMB and HML are significant factors in three factor model for explaining the China return variation.

Market returns and risk factors for the emerging economies

Applied Economics, 2020

This paper creates daily factors (much like Fama and French) and monthly aggregate idiosyncratic volatility measures for 15 emerging economies. Data deficiencies, including firm balance sheet data, are bypassed by constructing daily country factors through principal components. We focus on each country's aggregate idiosyncratic volatility. We derive empirical measures for these volatilities and test them against prior known results. In addition, we examine the attributes of these measures by employing regime-switching, trend tests, and multiple structural breaks. An expository effort is also made to interpret the derived factors and examine their performance. Our findings indicate that the derived volatility series are robust and empirically valid in correctly detecting most of the exact timing of known volatility periods. The derived factors and volatility series will be posted online for free public access and are expected to be updated on a regular basis.

Cross-Sectional Returns With Volatility Regimes From Diverse Portfolio of Emerging and Developed Equity Indices

RePEc: Research Papers in Economics, 2015

This ar� cle aims to extend evalua� on of the classic mul� factor model of Carhart (1997) for the case of global equity indices and to expand analysis performed in Sakowski et. al. (2015). Our inten� on is to test several modifi ca� ons of these models to take into account diff erent dynamics of equity excess returns between emerging and developed equity indices. Proposed extensions include a vola� lity regime switching mechanism (using dummy variables and the Markov approach) and the fi � h risk factor based on realized vola� lity of index returns. Moreover, instead of using data for stocks of a par� cular market (which is a common approach in the literature), we check performance of these models for weekly data of 81 world investable equity indices in the period of 2000-2015. Such an approach is proposed to es� mate an equity risk premium for a single country. Empirical evidence reveals important diff erences between results for classical models es� mated on single stocks (either in interna� onal or US-only frameworks) and models evaluated for equity indices. Addi� onally, we observe substan� al discrepancies between results for developed countries and emerging markets. Finally, using weekly data for the last 15 years we illustrate the importance of model risk and data overfi � ng eff ects when drawing conclusions upon results of mul� factor models.

Correlation breakdown and extreme dependence in emerging equity markets

This study investigates the dependence structure of extreme realization of returns between the mature markets of Japan and the U.S. and the emerging markets of Cyprus, Greece and that of six Asia- Pacific counties, with the application of multivariate Extreme Value Theory that best suits to the problem under investigation. The evidence we obtain indicates that the left tail extreme correlations (downside risk) are not substantially different from the unconditional ones or from those obtained from a multivariate Dynamic Conditional Correlation GARCH model (DCC) with asymmetric GJRGARCH univariates. Moreover, a clustering analysis shows that the examined countries do not belong to a distinct block on the basis of the extreme correlations we have estimated. The policy implications are that the benefits from portfolio diversification between the Cyprus stock market and the markets of Asia-Pacific countries, Greece, Japan and the U.S. are not eroded during crisis periods, in that no “cor...

Relationship between Developed, Emerging and South Asian Equity Markets: Empirical Evidence with a Multivariate Framework Analysis

This study is the first effort to establish a short and long run relationship between developed (US-S&P500 index and UK-FTSE100 index), emerging (DJ TOXX 600) and South Asian (India, Pakistan and Sri Lanka) equity markets. Using the data from Jan 1998 to Dec 2013, this study have tested the unit properties of indexes returns in the presence of two structural breaks applying Clemente et al. (1998) detrended test. The Auto-regressive Bound Testing (ARDL) approach to cointegration is used to determine the cointegration relation. After cointegration is found between the stock markets of interest, Dynamic OLS (DLOS) cointegration equations are applied to estimate long run co-efficients. Short run relationship is determined through Vector Error Correction (VEC) based Granger causality, Impulse Response Function (IRF) and Variance Decomposition Analysis (VDA). Findings reveal that South Asian markets, developed and emerging markets are cointegrated. The impact of developed markets on emerg...

Global and Regional Sources of Risk in Equity Markets: Evidence from Factor Models with Time-Varying Conditional Skewness

2004

This study examines the influence of global and regional factors on the conditional distribution of stock returns from six Asian markets, using factor models in which unexpected returns comprise global, regional and local shocks. Besides conditional heteroskedasticity, the models allow shocks to have time-varying conditional skewness. The global factor appears less important for market volatility in models that permit time-varying conditional skewness. The influence of regional and global factors on risk is small in most of the markets, except in the late 1990s during which the regional factor accounted for a substantial portion of negative skewness in the markets' returns distribution.

An Analysis of Stock Index Distributions of Selected Emerging Markets

2006

Stock market data tends to display distinct characteristics commonly known as “stylized facts”. These include non-stationarity of price levels, as well as peak-shaped, fat-tailed and heteroskedastic log returns. This paper presents empirical evidence of these characteristics for emerging market indices, spanning over different geographic regions. The results do not disclose asymmetry in the tails of log return distributions in any particular direction. In addition, it is not confirmed that high volatility tends to follow large negative returns.