Federal Reserve Bank of St. Louis
International Stock Comovements with Endogenous Clusters
We use an endogenous cluster factor model to examine international stock return comovements of country-industry portfolios. Our model allows country-industry portfolio comovements to be driven by a global and a cluster component, with the cluster membership endogenously determined. Results indicate that country-industry portfolios tend to cluster mainly within geographical areas that can include one or more countries. The cluster component was the main driver of country-industry portfolio returns for most of the sample, except from mid-2000 to mid-2010s when the global component had a more prominent role. At the end of the sample, a large cluster among European countries emerges.
Cite this item
Laura Coroneo & Laura E. Jackson & Michael T. Owyang, International Stock Comovements with Endogenous Clusters, Federal Reserve Bank of St. Louis, Working Papers 2018-38, 24 Oct 2018.
- C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
Keywords: diversification; risk; international financial markets; clustered factor model
This item with handle RePEc:fip:fedlwp:2018-038
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