|
Archive@NYU >
Stern School of Business >
Finance Working Papers >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27373
|
| Title: | What Are the Sources of Country and Industry Diversification? |
| Authors: | Hargis, Kent
Mei, Jianping (J.P.) |
| Keywords: | Return Decomposition
Time-varying Risk Premiums
Market Integration |
| Issue Date: | 2000 |
| Series/Report no.: | FIN-00-045 |
| Abstract: | In this paper, we develop a new framework in which one can analyze
industry and country effects by examining their underlying return
components. We find that the global cash flow factor explains on average
48% of the variation of industry cash flows and the global discount
rates explain 43% of the variation of industry discount rates. These are
more than double the explanatory power of the two factors over country
cash flow and discount rate variations, which are 23% and 13%
respectively. This suggests that global factors are much less important
for return components at country level than at industry level. The
larger benefits of diversification across countries than across
industries are thus driven more by better diversification of expected
returns, although better diversification of cash flows also drives the
result. Moreover, emerging markets tend to have much smaller
co-movements of both dividends and equity risk premiums with those of
the world, suggesting a lower degree of integration with the world goods
and financial markets. This appears to be the basis for emerging market diversification. |
| URI: | http://hdl.handle.net/2451/27373 |
| Appears in Collections: | Finance Working Papers
|
All items in Faculty Digital Archive are protected by copyright, with all rights reserved.
|
