Factor reversal in the euro zone stock returns: Evidence from the crisis period

Chou, Hsin-I; Zhao, Jing; Suardi, Sandy

doi:10.1016/j.intfin.2014.07.007

Cited by 9 publications

(3 citation statements)

References 34 publications

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“…We show for the full period, Italy, Japan, and Spain have the highest standard deviation of country factor, being the only countries with an average above 4%. This corresponds to Chou, Zhao, and Suardi's () findings of a significant country effect for the PIIGS countries and the findings of Wang et al () on the significance of Japan's country effect. The US and UK are the only countries with average standard deviations below 2.5% for the period, with the US significantly below all others at 1.7%.…”

Section: Resultssupporting

confidence: 87%

“…We confirm the results of Baele and Inghelbrecht () who conclude that industry risk grew to a comparable size with country risk from 2003. The return in importance in country factor during subperiod 3 tallies with Chou et al (), who also find evidence of a shift back to country effects during the financial crisis and Girard, Ferreira, and Sinha () who find that country‐specific risk dominated industry risk during the Asian crisis, with industry risk higher during “normal conditions” (p. 22). Our results contradict Steliaros and Thomas' () finding that in periods of positive returns and low volatility, the country effect dominates.…”

Section: Resultssupporting

confidence: 62%

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The importance of firm level multinationality in the country versus industry debate

Mullen

Berrill

2017

Int. J Fin Econ

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We conduct the most comprehensive empirical analysis that exists to date of the effect multinationality has on the explanatory power of country and industry factors in international diversification. We investigate the impact the size, scope, and location of a company's international sales has on country versus industry factors, analysing 1,Spain, the UK, and the US over the 15-year period, 1998-2012. We find that the magnitude of the country factor is greater than the magnitude of the industry factor for the period as a whole but that a company's level of international sales has a greater impact on the magnitude of its industry factor than the magnitude of its country factor.Counter-intuitively, we find stocks with lower sales exposure to their country of origin have a higher country factor, and we show the existence of both a strong local and international industry factor. Our results suggest countryof-origin diversification may no longer be sufficient to exploit country-specific risk and the country factor has become a "country classification" factor.

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Section: Resultssupporting

confidence: 87%

Section: Resultssupporting

confidence: 62%

The importance of firm level multinationality in the country versus industry debate

Mullen

Berrill

2017

Int. J Fin Econ

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“…Heston and Rouwenhorst () suggested a factor decomposition approach (the HR approach henceforth) to examine the relative importance of country versus industry factors in explaining stock return variation. The HR decomposition approach has become a popular research method in this area; it has been applied in studies such as Rouwenhorst (), Serra (), Brooks and Del Negro (), Ferreira and Ferreira (), Campa and Fernandes (), Bai and Green (, ), Lee and Hooy (), and Chou, Zhao, and Suardi (). The HR approach has also been extended in studies such as Baele, Ferrando, Hördahl, Krylova, and Monnet () and Pieterse‐Bloem, Qian, Verschoor, and Zwinkels () to decompose the country and industry factors in European corporate bonds.…”

Section: Introductionmentioning

confidence: 99%

Decomposition of systematic and total risk variations in emerging markets

Lee

Hooy²,

Brooks³

2018

International Finance

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This paper examines the country‐versus‐industry debate in international diversification in the context of systematic risk. We employ the popular decomposition approach proposed by Heston and Rouwenhorst and cover 2,045 individual firms from 36 emerging countries across 39 industries. Generally, we find a domination of country factors in the sample period of 1990–2012, particularly after the 1997 Asian Financial Crisis, which implies that country‐based diversification is still superior to industry‐based diversification in emerging markets. In addition, we document high variability of the common factor coupled with a diminishing trend of country and industry factors, which limits the desired risk reduction from diversification in emerging markets. A convergence between systematic and total risk is found beginning in 2007, which coincides with the timing of the Global Financial Crisis.

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The Indirect Diversification Benefits of Investing in Japanese Firms: An Alternative Perspective

Chadha,

Berrill

2024

Asia-Pac Financ Markets

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This paper examines the role of firm-level multinationality in equity portfolio diversification for Japanese firms from 1998 to 2015. We use a unique multinationality dataset for constituents of the Nikkei 225 based on two measures of sales and subsidiaries. We employ an extended version of the traditional Capital Asset Pricing Model (CAPM) to analyse the exposure of firm returns to various geographical regions. There is evidence that firms are not influenced by the geographic regions where they report operations. The results also indicate that there are benefits from investing in Japanese multinationals but these benefits do not increase with increasing multinationality. A new category of firms is identified that may be beneficial to investors—firms that are influenced by a geographical region where they do not report sales or subsidiaries. This finding has far reaching implications for portfolio management. Investors must do more than analyse the international location of firm operations. They must analyse the geographical influences on firm returns. Existing studies fail to distinguish between these two criteria, assuming them to be the same. We find evidence to the contrary.

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Factor reversal in the euro zone stock returns: Evidence from the crisis period

Cited by 9 publications

References 34 publications

The importance of firm level multinationality in the country versus industry debate

The importance of firm level multinationality in the country versus industry debate

Decomposition of systematic and total risk variations in emerging markets

The Indirect Diversification Benefits of Investing in Japanese Firms: An Alternative Perspective

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