City Research Online

Abstract

The thesis examines the increasing market co-movement and its implications for international portfolio diversification. The main purpose is to investigate the relative importance of country/industry effects and contagion in global equity markets. The overall analysis shows that the country versus industry effects in equity returns are changing over time and vary across regions. In particular, the divergence is more prevalent between developed and emerging markets. When examining the potential sources driving the country/industry effects, the study finds that the dynamics of those effects are related to the ongoing business globalization and financial market integration. Specifically a rise in a firm’s international sales increases its global effects and decreases its country effects and a firm with ADR counterpart tends to have higher global and industry effects compared to a non-ADR firm. The study also indicates that the recent increase of industry effects is not only confined to TMT sectors but is an industry-wide phenomenon, thus suggesting that IT bubbles are not responsible for such increase. With the increasing importance of industry effects and the rising cross-border industry/sector co-movement, the thesis further studies the sector level integration and contagion in equity markets. The results show that sector level integration varies across regions and contagion exists at sector level. Particularly nearly half the sectors in Europe, Asia and Latin America were affected via the global shocks during the Mexican crisis, but only several sectors in Asia were contagious during the Asian crisis. The evidence provided in this thesis has important implications for international diversification.

Publication Type:	Thesis (Doctoral)
Subjects:	H Social Sciences > HG Finance
Departments:	Bayes Business School > Bayes Business School Doctoral Theses Bayes Business School > Finance Doctoral Theses

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